The number of buy-to-let mortgage products requiring just a 20% deposit has seen a notable increase compared to a year ago. Back then, there were only 334 such options available, and even fewer—just 200—in March 2023.
Traditionally, most landlords choose mortgage deals that cover 75% of the property’s value. These remain popular in today’s market, with around 1,773 of these products currently being offered, according to data from Moneyfacts.
However, there’s a clear shift happening. Lenders like HSBC appear to be becoming more open to offering higher loan-to-value (LTV) deals. This change is allowing buyers to secure rental properties with smaller deposits.
Oli O’Donoghue, Head of Mortgages at HSBC, confirmed this trend by highlighting the continued demand within the buy-to-let sector. He stated that HSBC has responded to this demand by raising the maximum LTV on its mortgage range to 80%.
This adjustment, according to O’Donoghue, is aimed at making property investment more accessible. By reducing the required deposit, it gives borrowers increased flexibility and a better chance to enter or expand within the rental market.
He added that this move not only lowers the upfront cost for investors but also boosts their borrowing power, potentially opening up more opportunities in the property sector.
Will 20% deposit buy-to-let mortgages be popular?
Chris Sykes, technical manager at mortgage broker Private Finance, has observed a gradual return of 80% loan-to-value (LTV) buy-to-let mortgages since interest rates surged in 2022. While the number of these products is on the rise, he notes that most landlords are still favouring mortgage deals that require a 25% deposit or more.
One of the main reasons behind this preference is the higher interest rates associated with 80% LTV mortgages. For example, the average five-year fixed rate for a 75% LTV buy-to-let mortgage currently stands at 5.46%, whereas the rate jumps to around 5.89% for an 80% deal.
This difference in rates can significantly affect monthly repayments. On an interest-only mortgage of £200,000—a common choice for landlords—the monthly cost would be around £910 at 75% LTV, compared to roughly £981 at 80% LTV.
Sykes also believes that many property investors won’t qualify for 80% LTV mortgages, even if they are interested. This is primarily due to rental yields not being high enough to support the larger loan amounts. Rental yield is the percentage of annual rental income relative to the property’s value. For instance, a 5% gross yield on a £200,000 property equates to £10,000 a year in rent.
Whether or not a landlord is approved for a mortgage depends heavily on how much rental income the property can generate. Mortgage lenders typically assess this through the interest coverage ratio (ICR), which compares gross rental income to mortgage interest payments. Most lenders require rental income to cover at least 125% of the mortgage payment for basic-rate taxpayers, and up to 145% for higher-rate taxpayers.
To further safeguard against risk, lenders apply stress tests to ensure the mortgage remains affordable even if interest rates rise. These tests generally add 1–2% on top of the actual mortgage rate to calculate affordability.
Sykes admits that securing an 80% buy-to-let mortgage has become quite rare. “I can’t actually remember the last time I successfully arranged one,” he says. He estimates that most of his landlord clients operate with loan-to-values closer to 60–65%.
While the appeal of lower deposit requirements may tempt some landlords, the reality is that the combination of higher interest rates and strict rental yield requirements means these deals are often out of reach. Sykes concludes that the real hurdle isn’t just the cost, but proving a property can generate enough income to support a higher level of borrowing.
According to recent data from Zoopla, the average rental yield across the UK in 2024 is currently sitting at around 5.6 per cent. While this may seem like a healthy return on investment for landlords, it falls short of what many lenders now require for higher loan-to-value (LTV) buy-to-let mortgage deals. These stricter affordability measures are making it more challenging for landlords to borrow larger sums with smaller deposits.
Chris Sykes, technical manager at mortgage broker Private Finance, explains that the affordability criteria for 80 per cent LTV mortgages often demand much higher rental yields—typically in the region of 6.5 per cent or more. This means landlords need their rental income to represent a higher proportion of the property’s value in order to qualify for these deals, which is not always feasible in today’s market.
Sykes warns that even if landlords can meet these high rental yield requirements, the profit margins they’re left with are likely to be razor-thin. He points out that a higher LTV mortgage doesn’t leave much room for any unforeseen costs. “At that level, the margins are very, very thin,” he says. “There’s not much left over once you account for the risk of unexpected repairs, maintenance costs or property upgrades.”
Unexpected expenses such as a broken boiler or necessary renovations can have a serious impact on a landlord’s finances, especially when working with such limited margins. For many property investors, this level of risk is enough to deter them from considering 80 per cent LTV deals, despite the appeal of a lower upfront deposit.
In fact, Sykes believes that the current market conditions and affordability pressures are unlikely to encourage a wave of new buy-to-let investors. Instead, he suggests that many will take a more cautious approach, opting for lower LTV mortgages with more manageable repayments and healthier returns. He adds, “I don’t see this encouraging more buy-to-let investors into buying property. The margins on 75 per cent mortgages are generally better.”
To make matters more difficult, even securing a 75 per cent LTV mortgage is proving to be a challenge in certain cases. “Sometimes we’re even struggling to get to 75 per cent on a mortgage, let alone 80 per cent,” Sykes admits. This further underlines the tightening of lending criteria across the board, making it harder for landlords to expand their portfolios.
Lenders have become increasingly cautious since interest rates began rising, and this has led to more stringent stress testing and income requirements for borrowers. Most lenders now assess affordability based on the property’s ability to generate rent that not only covers the mortgage payments but also provides a buffer for rate fluctuations and other potential costs. This cautious approach limits the appeal of higher LTV deals.
In summary, although 80 per cent LTV mortgages are becoming more available, they remain out of reach for many landlords due to strict affordability calculations and minimal profit margins. For most investors, sticking to more traditional 75 per cent LTV options—or even lower—offers greater financial stability and peace of mind in an increasingly demanding property market.
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