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Most buy-to-let mortgages require a minimum deposit of 25 percent of the property's purchase price. Some lenders will consider 20 percent, but at that level the product range narrows and rates tend to be higher. For the most competitive rates and the widest choice of lenders, 25 percent is the starting point. The deposit must come from your own funds — a loan, whether from a bank or family, cannot be used.
Buy-to-let affordability is not based on your personal income in the same way as a residential mortgage. Instead, lenders primarily look at the rental income the property is expected to generate relative to the mortgage payment. Most lenders require the monthly rent to cover at least 125 to 145 percent of the interest payment at a stressed test rate, which is often higher than the actual rate on offer. This is called the rental coverage calculation. If the rent does not cover this threshold, you may need a larger deposit or a different property.
If you are buying through a limited company, the deposit requirements are broadly similar, though the affordability assessment and the lender panel available to you differ from personal buy-to-let. We advise on both personal and limited company structures.
The deposit must genuinely be yours. Lenders take a close interest in where your deposit originates. A gifted deposit from family is generally acceptable if the donor confirms in writing that the money is a gift rather than a loan. A loan cannot be used as a deposit because it forms part of your liabilities and affects the affordability calculation.
Beyond the deposit, there are several additional costs to budget for when purchasing a buy-to-let property. Stamp Duty Land Tax includes a 3 percent surcharge for any property that is not your main home. For a 250,000 pound property, this surcharge alone adds 7,500 pounds. Lender arrangement fees for buy-to-let mortgages often run to 1,500 to 2,500 pounds. Valuation and conveyancing fees add further. A realistic budget for purchase costs on a 250,000 pound property is around 12,000 to 18,000 pounds on top of the deposit.
Setting up the property for tenants also costs money. Safety certificates (gas, electrical, energy performance), any furniture or fittings if the property is let furnished, and initial letting agent fees if you use an agent to find tenants should all be factored in before you commit. Our advisers always walk through the full picture with you so there are no surprises after completion.
Our advisers always walk through a full budget planner with you before any application is submitted — making sure you're comfortable with both the mortgage payment and the wider financial picture of homeownership.
