Last reviewed: June 2026
TL;DR- Buy-to-let mortgages are assessed primarily on rental income, not personal income - rental income must typically cover 125-145% of the mortgage payment at a stressed rate.
- Most lenders require a minimum deposit of 25% for buy-to-let, giving a maximum LTV of 75%.
- Stamp duty on buy-to-let purchases attracts an additional surcharge on top of standard residential rates.
- Section 24 of the Finance Act 2015 restricts mortgage interest tax relief for individual landlords to basic rate tax credit only.
How Buy-to-Let Mortgages Differ from Residential Mortgages
Buy-to-let (BTL) mortgages are designed for properties purchased primarily to rent to tenants rather than for owner-occupation. They are assessed and priced differently from residential mortgages in several key respects.
Most buy-to-let mortgages are not regulated by the FCA under the Mortgage Credit Directive - consumer buy-to-let mortgages (where the borrower is letting to a close family member or the property was previously their home) are regulated, but standard investment buy-to-let mortgages are not. This means some of the affordability protections that apply to residential mortgages do not apply to standard BTL products, though lenders apply their own underwriting criteria.
Rental Income Coverage Tests
The primary affordability test for a buy-to-let mortgage is the rental income coverage ratio. Lenders assess whether the expected monthly rental income covers the mortgage payment by a sufficient margin, typically 125% for basic rate taxpayers and 145% for higher rate taxpayers. This stress test uses a notional interest rate above the product rate - often 5-5.5% - rather than the actual pay rate, to assess coverage if rates rise.
For example, on a £200,000 interest only mortgage at a stressed rate of 5.25%, the notional monthly payment is approximately £875. At a 145% coverage requirement, the required monthly rental income would be approximately £1,269. If the expected market rent is below this figure, the maximum loan will be reduced accordingly.
Deposit Requirements and LTV
Most buy-to-let lenders require a minimum deposit of 25%, giving a maximum loan-to-value of 75%. Some lenders extend to 80% LTV for lower-risk properties or strong applications, and specialist lenders may go higher in some circumstances. The rate differential between 60%, 65%, 70% and 75% LTV products is typically significant in the BTL market, making deposit size a key factor in total cost.
Stamp Duty on Buy-to-Let Purchases
Purchases of additional residential properties - including buy-to-let properties - attract a surcharge on top of standard residential stamp duty land tax (SDLT) rates in England and Northern Ireland, with equivalent surcharges in Scotland (LBTT) and Wales (LTT). The current surcharge rate and thresholds are set by HMRC and can be confirmed via the GOV.UK stamp duty calculator. First-time buyers purchasing a buy-to-let property as their first property do not qualify for first-time buyer SDLT relief.
Section 24 and Mortgage Interest Tax Relief
Since April 2020, individual landlords - those holding properties in their personal name rather than through a limited company - have been restricted in the amount of mortgage interest they can offset against rental income for tax purposes. Under Section 24 of the Finance Act 2015, which was phased in from 2017-18, individual landlords cannot deduct mortgage interest as an expense from rental income. Instead, they receive a basic rate tax credit (currently 20%) on the mortgage interest paid. For higher and additional rate taxpayers, this change significantly increased the effective tax rate on rental income compared with the pre-2017 position.
Limited company buy-to-let landlords are not subject to Section 24 - limited companies can still deduct mortgage interest as a business expense. This has driven significant growth in limited company BTL mortgages, though the corporation tax, income tax and capital gains tax implications of operating through a company are complex and require specialist advice.
Frequently Asked Questions
Can I use a residential mortgage to buy a property and then rent it out?
No. Residential mortgages include a condition that the property is owner-occupied. Renting out a property on a residential mortgage without the lender's consent is a breach of the mortgage terms and potentially mortgage fraud. Lenders may require immediate repayment of the mortgage if they discover unauthorised letting. Borrowers who wish to rent out a property should apply for a buy-to-let mortgage or obtain consent to let from their existing residential lender.
Are buy-to-let mortgages regulated by the FCA?
Standard investment buy-to-let mortgages are not regulated by the FCA. Consumer buy-to-let mortgages - where the property is or will be let to a close family member, or where the borrower did not take out the mortgage primarily for investment purposes - are regulated under the Mortgage Credit Directive. Borrowers should check whether their specific circumstances mean their mortgage is a consumer buy-to-let product.
What is the difference between a buy-to-let mortgage and a HMO mortgage?
A standard buy-to-let mortgage covers properties let to a single household on an assured shorthold tenancy. An HMO (house in multiple occupation) mortgage covers properties let to multiple unrelated tenants sharing facilities, which are subject to additional licensing requirements under the Housing Act 2004. HMO mortgages typically attract higher rates and stricter criteria than standard BTL products.
Do buy-to-let mortgages require personal income as well as rental income?
Most buy-to-let lenders require the borrower to have a minimum personal income - commonly £25,000 to £30,000 per year - in addition to meeting the rental coverage test. This is to ensure the borrower has sufficient personal income to service financial obligations during void periods or if rent does not cover the mortgage payment. Some specialist lenders do not impose a personal income requirement.
