How much can I borrow with a Buy-to-let mortgage?

Sunday 17th December 2023 | 6 minute read

If you’re looking to purchase a property and rent to tenants, you’ll want to know how much you can borrow with a buy-to-let mortgage.

How much can I borrow with a Buy-to-let mortgage

Our buy-to-let mortgage calculator provides a free and no-obligation quote based on your circumstances and requirements.

But before you dive into calculating how much you can borrow, there are some things you should know. So inside this article, you’ll discover:

  • What is a buy-to-let mortgage?
  • Do you need a buy-to-let mortgage?
  • How to switch from a standard mortgage to a buy-to-let mortgage
  • How buy-to-let mortgages are calculated including explanations of:
    • Loan-to-Value (LTV)
    • How rental income affects how much you can borrow
    • Interest rates
    • Arrangement fees
    • Deposit requirements

We’ll start with the basics…

What is a buy-to-let mortgage?

A buy-to-let mortgage is a financial loan for landlords and property portfolio owners intending to buy a property to rent to tenants.

Why can't I just get a standard mortgage?

You need a buy-to-let mortgage if you will not be living in the home you’re purchasing. If you’re renting to immediate family members, a standard mortgage may be enough. But renting long-term to other relatives or tenants requires a buy-to-let mortgage.

Buy-to-let mortgages are calculated on profitability (from rent), whereas residential mortgages are calculated on affordability (your salary and outgoings).

Do I need a Buy to Let mortgage to rent out a property? 

But “What's the difference between a standard residential mortgage and a buy-to-let mortgage?” we hear you ask.

Well, the main difference is that a standard mortgage is for your residential home and buy-to-let mortgages are for commercial/business, i.e. You are the landlord and are charging rent to tenants. So, yes, you need a buy-to-let mortgage to rent out a property.

As a landlord-tenant relationship is commercial (where money is exchanged for rent), buy-to-let mortgages are not regulated by the financial conduct authority. This means there's a different application process for buy-to-let mortgages.

And how much you can borrow for a buy-to-let mortgage is also calculated differently from a standard mortgage. For example, Interest rates, deposits and fees for buy-to-let tend to be higher.

Thinking about renting out your current home?

If you have a standard residential mortgage on your current main residence but want to rent it out, you’ll need to switch to a buy-to-let mortgage or a consent-to-let mortgage. 

A consent-to-let mortgage is like a buy-to-let mortgage but it's for a short-term rental, not long-term. For example, if you’re travelling to a different part of the country for 1 year, you may rent out your home for that period. And your lender may agree to switch your standard mortgage to a consent-to-let mortgage for that fixed time.

Talk to our buy-to-let financial experts to see which type of mortgage is best for you.

Call us today on 01202 612934.

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How much could I borrow on a Buy to Let mortgage? 

Okay, so now it’s time to calculate how much you can borrow on a buy-to-let mortgage. The amount you can borrow is largely based on the amount of rent you will be collecting when you have tenants. 

As each lender has different criteria for acceptance, you’ll need to check your eligibility when applying. But the majority of lenders will have these guidelines:

Buy-to-let mortgage criteria and eligibility:

  • You must be earning over 25,000pa
  • You must own your own home (either outright or on a standard mortgage)
  • Your expected monthly rental income must be higher than the monthly repayment amount
  • You must have a good credit history
  • You can’t be over 70 years old when your buy-to-let mortgage term ends

Our buy-to-let mortgage calculator will give you a good idea of how much you can borrow. If you have any questions about your eligibility for a buy-to-let mortgage, call our experts today on 01202 612934. They’ll be able to talk you through your best options.

Want to know more about what affects how much you can borrow? Continue reading below the calculator.

Buy-to-let mortgage calculator

Are you ready to learn how much you can borrow on a buy-to-let mortgage? Fill out this short form to get an instant calculation. 

Our buy-to-let mortgage calculator will use rental income, property value, and the total amount you want to borrow to provide a free, no-obligation quote. You can talk to our buy-to-let experts to discuss the best deals you can get based on your results here. 

How are buy-to-let mortgages calculated?

Lenders take many variables into account when calculating how much you can borrow with a buy-to-let mortgage. As mentioned above, the largest weight for the lending amount is the rental income. 

The other areas that affect the amount you can borrow are Loan to Value (LTV), the deposit amount, and how long you want to borrow for. The total costs will also include the interest rates and arrangement fees.

Rental Income

A standard mortgage is usually calculated based on how much you earn and your outgoings. And although lenders will consider this when assessing your application, it’s not what holds the most weight in the final decision.

Lenders want to be sure you can afford to pay the agreed monthly payments for your buy-to-let mortgage. So the amount you can borrow relies heavily on the rental income.

Most lenders require the rental income to be 125% of the monthly mortgage repayment amount.

Here’s an example:

If you will get £1,250pm from your tenants, and your lender requires the rental income to be 125% of the mortgage repayments, your mortgage repayments will need to be no higher than £1,000pm.

This £1,000pm figure will be used as the basis for the total amount you can borrow.

Loan-to-Value (LTV)

Another figure lenders take into consideration when calculating how much you can borrow on a buy-to-let mortgage is the Loan-to-Value (LTV) percentage.

The most common LTV percentage for buy-to-let mortgages is 75%. Some lenders will allow you to go as high as 85% LTV, but the interest rates will be higher, making the loan more expensive. The lower you set the LTV percentage the more competitive the deals you can find. 

The loan-to-value percentage is calculated using the property value as the 100% baseline.

Here’s an example:

If the property value is £100,000, this figure is 100%. So the loan-to-value percentage shows the maximum amount you can borrow on a buy-to-let mortgage. A 75% LTV means you can borrow up to £75,000 on this purchase. 

You can get more competitive rates by setting the LTV percentage lower, and you can do this by putting down a larger deposit.

How much deposit do you need for BTL? Deposit and property value

Buy-to-let mortgages are a higher risk for lenders so they often look to receive a higher deposit than a standard residential mortgage. Most lenders will require between 25-40% deposit on your buy-to-let mortgage.

You can see how the deposit links to the Loan-to-Value figure we just looked at. A deposit of 25% of the property value leaves a 75% lending amount. And by increasing your deposit, you reduce the LTV which in turn lowers the risk for the lender. 

So, if you put down a higher deposit, you’ll get more competitive rates and deals.

How long do you want to borrow for?

Most competitive deals are 2-year fixed-rate buy-to-let mortgages. Longer borrowing terms make your buy-to-let mortgage more affordable, but will increase the total cost of the loan making it more expensive across the whole term.

Lenders tend to allow up to 10 years on the initial repayment period for the mortgage terms. After this, you can either pay the remaining amount in full or reapply for a buy-to-let mortgage with new terms.

To discuss the best options for you, call our experts today on 01202 612934.

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Interest rates

Interest rates on a buy-to-let mortgage tend to be higher than standard residential mortgages. The exact interest amounts will vary by lender, and your lending requirements but typically you can expect to be paying 3-6% interest on a buy-to-let mortgage.

Arrangement fees and other fees

As with the interest rates, arrangement fees are also higher for buy-to-let mortgages. More often than not, lenders will value fees as a percentage of the loan amount instead of a flat fee. 

Arrangement fees for buy-to-let mortgages typically range between 1-3% of the loan amount. However since the base rate hikes of 2023 some lenders are now charging up to 5%.

So if you are borrowing £100,000 your arrangement fee would likely be between £1,000 and £3,000.

In addition to the arrangement fees, you’ll also have property valuation fees and survey fees to cover too. These fees also tend to be higher for a buy-to-let mortgage agreement.

Use a broker to secure the best Buy-to-let mortgage deal

Buy to let mortgage brokers are experts at finding the best possible buy-to-let mortgage deals for your requirements. And you’ll save yourself a lot of time and potentially unforeseen costs when using a broker.

Want to discuss your buy-to-let mortgage requirements with us?

Use the calculator above to see how much you could borrow then give our experts a call today on 01202 612934.

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