Buy-to-Let Mortgages: How Much Do You Need?

Nikka Sulton

Buy-to-Let Mortgages: How Much Do You Need?

Buy-to-let (BTL) mortgages serve those aiming to purchase properties for rental purposes. While they share similarities with residential mortgages, crucial distinctions exist. Understanding these differences is vital for prospective landlords.

Buy-to-let mortgages often demand a substantial deposit, posing a hurdle for aspiring property investors. Nonetheless, it’s feasible to purchase a rental property with a modest deposit using the right strategy. In this comprehensive guide, we’ll outline lenders with the lowest deposit requirements and provide tips for enhancing your mortgage approval prospects.

How much deposit do you need for a buy-to-let mortgage?

In the UK, approximately half of lenders cap the loan-to-value (LTV) ratio at 75%, while around a third set it at 80%. This implies that a substantial deposit, usually ranging from 20% to 25%, is necessary to secure a favorable mortgage deal.

Notably, lenders tend to offer the highest LTV deals for previously owned houses. However, if you’re purchasing a flat, maisonette, or a newly constructed property, a larger deposit is typically required. For instance, nearly all lenders demand a minimum of 25% deposit for a new build flat.

What’s the minimum deposit requirement?

As of October 2022, a few lenders in the UK provide maximum loan-to-value (LTV) ratios exceeding 80%. The most generous offer currently available is a 95% LTV, requiring a mere 5% deposit. It’s important to note that this ultra-high LTV option is offered by only one lender, and meeting all of that lender’s eligibility criteria is essential to qualify.

Deposit requirements:

When it comes to buy-to-let mortgages, the typical minimum deposit requirement stands at 25% of the property’s value. However, for certain property types like flats or new builds, this deposit requirement can rise to as much as 35%. This contrasts significantly with residential mortgages, where deposits as low as 5% of the purchase price are often accepted.

Buy-to-let mortgages also come with a maximum loan-to-value (LTV) ratio, which represents the highest amount you can borrow relative to the property’s value. A larger deposit results in a lower LTV, and generally, lower LTVs are associated with more affordable mortgage rates. The most competitive buy-to-let mortgage rates are typically available with a maximum LTV of 60%. In practical terms, this means you’ll need to provide a 40% deposit based on the property’s sale price to access the best deals.

What are the criteria for a Buy to let mortgage?

To secure a buy-to-let mortgage, consider these key factors:

Rental Income: The property should generate 125-145% of the monthly mortgage payment.
Employment: Full-time employment is often required, with a 6-12 month employment history.
Income and Salary: Most lenders prefer a base salary; income details are necessary unless you’re a full-time landlord or part of a buy-to-let limited company.
Age: Typically, applicants must be at least 21, though some lenders accept 18-year-olds, while others require a minimum age of 25.
Credit History: Lenders assess your credit history, and although it’s possible to secure a buy-to-let mortgage with bad credit, a clean record enhances your chances. Severe credit issues may pose challenges, but minor problems like a missed bill usually won’t hinder your application.

How to get a buy-to-let mortgage with a low deposit

Securing a mortgage with less than a 20% deposit can be challenging, but it’s achievable by following these three steps:

Step 1: Raise Capital

Explore various methods to boost your mortgage deposit. The more capital you can accumulate, the wider your range of available deals. Consider the strategies mentioned above to increase your contribution.

Step 2: Consult a Buy-to-Let Expert

Even if you can manage a 15% or 5% deposit, there are options for purchasing property. Reach out to a specialist in low-deposit buy-to-let mortgages for expert guidance. To connect with an expert, complete the provided form.

Step 3: Prepare a Strong Application

Given limited mortgage options, your application must be impeccable. Lenders will assess your experience as a landlord, business accounts, and financial projections. A skilled broker can present your information in the most favorable light, enhancing your chances of approval.

How your deposit amount affects your mortgage rate

Having a small deposit often means you’ll face higher mortgage rates. This is mainly due to the limited pool of lenders willing to work with higher-risk applications.

However, once your fixed-rate or discounted-rate period ends, you can explore remortgaging. If you’ve accumulated savings from the rental income of your property, you can use it to remortgage at a lower loan-to-value (LTV) ratio. This can broaden your options by making you more appealing to a wider range of lenders.

Which lenders require the lowest deposit?

When it comes to buying a house with a buy-to-let (BTL) mortgage, some lenders offer options with the lowest deposits. Notable ones in this category include Darlington, Foundation Home Loans, and Vida Home Loans. If you’re looking to purchase a flat, Kent Reliance and Kensington Mortgages are among the top choices.

Keep in mind that when your lender options are limited, it’s crucial to avoid rejection. To maximize your chances of approval, consider working with a mortgage broker who can assist in preparing your application and help you select the lender that aligns best with your specific circumstances.

Eligibility criteria for professional landlords

Your experience level significantly impacts buy-to-let mortgage options. Seasoned landlords often find it easier to secure such mortgages compared to first-timers. Some lenders may mandate homeownership, while others won’t.

However, being an experienced landlord has its challenges. Some lenders impose limits on the number of buy-to-let mortgages an individual can hold.

Landlord Experience:

First-time buyer
First-time landlord (owns a residential property)
Landlord (currently owns at least one buy-to-let property)
Experienced landlord (owns a portfolio)

Property Type:

Most lenders focus on traditional brick-built houses (detached, semi-detached, and terraced).
Surveyors assess properties to ensure they meet lender criteria, and mortgage surveys may recommend improvements, agreed upon by the buyer and seller. Even when remortgaging, lenders may conduct surveys to verify property compliance.