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Buy to Let

If you want to buy a property to rent it out, you'll need a buy-to-let mortgage, and these differ from the type of mortgage you'd need to take out if you were to buy the property to live in yourself. There are many options to consider call one of our advisors to discuss today.

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Buy to Let

Property investors selecting residential premises to let out will typically use a buy to let mortgage. This type of mortgage differs from an individual residential mortgage, and there are many different options to consider.

If you are looking for the best buy to let mortgage company to fund your portfolio investments, give Revolution Brokers a call on 0330 304 3040 or drop us an email at info@revolutionbrokers.co.uk. We will work with you to source the best possible terms for your purchase!

The following topics are covered below:

Finding an Interest Only Buy to Let Mortgage for Refurbishments

Best Buy to Let Mortgage Rates Based on Loan to Value Ratio

Securing a New Build Buy to Let Mortgage UK

Average UK Buy to Let Mortgage Deposit Requirements

Best Buy to Let Mortgage Rates at a Competitive Loan to Value

Best Buy to Let Mortgage UK Products for Portfolio Landlords

Buy to Let Mortgage Deposit Requirements

Finding an Interest Only Buy to Let Mortgage for Refurbishments

One popular investment route is to purchase residential, commercial or semi-commercial properties. Once refurbished and modernised, the value of an investment can increase significantly.

Long-term financing options are available through buy to let mortgages, and rely on several criteria such as:

  • Your business plan
  • The cost of the investment
  • What sort of property you wish to buy
  • How experienced an investor you are
  • The cost of the refurbishment
  • Anticipated revenue rental streams
  • The LTV you want to borrow at

Now, buy to let mortgages are almost always on an interest-only basis.

You can find repayment buy to let mortgages, but that's very rare and would only work in exceptional circumstances - we've published separate guides, but here we'll focus primarily on interest-only.

In essence, you pay only the interest on the loan and none of the original capital borrowed each month.

Short-term, that's excellent news. Your outgoings will be minimal, and you retain more profit from your rental income.

However, it would be best to plan to determine how you will pay back the balance when the term ends. It might be 25 or so years off, but a lender will still want to know your exit strategy to have some assurance that an interest-only investment loan is right for you.

For example, you might intend to sell the property when the term lends, repay the mortgage capital, and keep the profits.

Alternatively, you might anticipate remortgaging the same rental premise or repaying the funds in an alternative way.

Best Buy to Let Mortgage Rates Based on Loan to Value Ratio

Loan to value, or LTV, is the ratio of the amount you wish to borrow compared to the value of the property. Most buy to let loan to values are capped at 75%,  and therefore most investors will need to have a minimum 25% deposit available.

There are funding options to help with the deposit requirements should you not have a deposit to hand, but have found the ideal investment project.

Note that these are typical deposit requirements. If you have a smaller deposit but a compelling rental investment opportunity, there is usually a way to structure the finance to ensure you can go ahead.

Likewise, a larger deposit will make your application more compelling and improve the rates available to you.

Bridging loans are a short-term cash flow solution and can lend against most types of project, including commercial property investments, land development projects, and refurbishments to resell.

If you're unsure about the LTV ratio you need or whether your deposit is sufficient, please give Revolution Brokers a call. Our team of expert consultants specialise in the buy to let mortgage sector and can identify exclusive deals and negotiated terms, tailored to your borrowing requirements.

Securing a New Build Buy to Let Mortgage UK

Some landlords or property developers may consider investing in new-build properties. These can be an excellent choice of investment and a cost-effective buy to let property with minimal maintenance required.

Mortgage lenders work by assessing each application individually, so it is essential to discuss your projects with a specialist broker or lender to ensure that you apply to the correct buy to let mortgage provider.

Different lenders have different criteria and types of property they will lend against, so using a professional broker will save time and ensure that you get the best deals on the market.

Many finance options are available, such as specific buy to let mortgages for new builds and refurbishment mortgages that lenders can adjust to fit your project.

Average UK Buy to Let Mortgage Deposit Requirements

While the standard LTV ratio is 75%, specialist buy to let lenders may consider different types of applications at a higher risk level - although a lot depends on the circumstances. You may be looking to expand an existing property portfolio, invest in an auction property, or be embarking on an extensive refurbishment project.

Some property developers may not have the deposit to hand for the most competitive buy to let mortgage structure. They need a tailored solution to move forward with their investment plans.

Specialist lenders can negotiate and be flexible on loan to value required, so if you need a bespoke financing solution, give Revolution Brokers a call. We will help to structure your lending around your needs.

While you'll save costs by having a 25% plus deposit, our consultants can advise on available solutions with a lower initial down payment.

Best Buy to Let Mortgage Rates at a Competitive Loan to Value

Mainstream lenders are usually most able to lend to experienced investors, with a track record of trading and credit history.

If you are a new property developer or starting a new buy to let business, you may find that high-street lenders are unable to extend credit without having a minimum period of experience.

Should this apply to you, give us a call or drop us an email at info@revolutionbrokers.co.uk - we work with developers and landlords large and small, experienced and new, so can help in any scenario.

Some lenders will require a larger deposit of at least 25%, and charge higher rates of interest than you would pay on a typical residential mortgage. There are other affordability criteria to meet, such as demonstrating that rental income will be at least 145% of the annual mortgage repayments.

Revolution Brokers work with a network of reputable lenders who understand the buy to let property sector and can offer competitive buy to let loan to values. Specialist mortgage providers can also adjust their requirements for rental revenue to 125% of the mortgage costs.

One of the benefits of higher LTV buy to let mortgages is that they are usually faster to apply for since the lenders have the security of assessing the local rental market. That provides a stable basis to lend against and means that your personal income is not the only criteria.

Best Buy to Let Mortgage UK Products for Portfolio Landlords

Landlords with four or more investment properties have other options available, such as portfolio mortgages.

While many mainstream lenders may cap the number of properties against which they can lend, specialist mortgage providers can fund multiple investment properties.

The benefit of a commercial buy to let mortgage company is that they tailor mortgage offers to your projects. That means that investors can secure finance for a broader range of properties, including those that high street lenders will often not finance, such as flats in apartment blocks, or units above retail premises.

It is worth noting that commercial buy to let mortgages tend to have more rigorous lending criteria. So you will need to provide business plans and documentation about your investment before you can secure lending.

However, the investment is usually chain-free, which means you can move quickly and therefore negotiate on the purchase value.

Buy to Let Mortgage Deposit Requirements

One factor to bear in mind is that lenders will all have policies about the deposit sources (i.e. where the funds come from) they will accept.

Typical deposits come from savings, proceeds of another property sale, or perhaps remortgaging another portfolio property to release capital, but that's not an exhaustive list.

Other buy to let mortgage deposits might come from:

  • Personal borrowing or credit cards.
  • Inheritances or gifts.
  • Funds from selling other assets.
  • Overseas income.

It's advisable to work with an experienced broker if your deposit for a buy to let mortgage comes from anything but personal savings.

Applying to the wrong lender could mean your application is automatically rejected and cause further problems down the line with multiple hard searches on your credit file.

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Frequently asked questions

How Can I Get a Great Buy to Let Mortgage With a Small Deposit?

Revolution Brokers can achieve a buy to let loan to value of 85%. However, some lenders can negotiate on this depending on your circumstances and the specific project.

The buy to let mortgage market is growing, which means that lenders are becoming more competitive and flexible. Compared to last year, buy to let mortgages increased by around 400 properties, with approximately 2,000 new mortgage products to choose from.

Your best buy to let mortgage deals at 85 LTV will depend on how much deposit you have to offer, and your experience as a landlord.

For example, most lenders will have a benchmark 25% deposit minimum, but there can be options to offer greater security elsewhere and negotiate some leniency on this requirement.

What Are the Best Buy to Let Mortgage Deals?

There are a limited number of lenders offering competitive buy to let mortgages, which is why it is essential to use an expert broker to ensure that your terms are the best available.

Therefore, finding a lender who will accept an applicant with a lower deposit is more challenging than if you've got a sizable down payment, lots of rental history, and a solid track record of success. Still, Revolution Brokers work with an established network of buy to let lenders offering flexibility regarding their terms.

You might find that a mainstream lender might offer a low-deposit mortgage, but charge higher interest rates. Usually, providing a higher deposit will reduce the rates payable on the mortgage.

Where Can I Apply for a New Build Interest Only Buy to Let Mortgage?

Revolution Brokers work with many first-time investors, or developers looking to purchase a new build property who have not been able to secure appropriate lending through mainstream lenders.

With our expertise, most first-time investors borrowing at a typical LTV ratio can secure rates which are the same as those available to experienced landlords.

While you might expect to be asked for a higher deposit, or to provide more information about your personal finances, it is possible to secure a competitive buy to let mortgage whether you are buying a new-build, or investing for the first time.

What Are Your Tips for Finding the Best Buy to Let Mortgage?

Our advice for comparing buy to let mortgages is:

  • Keep an eye on the fees. Some lenders will offer competitive rates, but with much higher rates than you would expect to pay. Charges on buy to let mortgages do tend to be higher than for residential purchases, but these should be transparent and upfront so you know what you will pay.
  • Check the early repayment fees. Some mortgage offers look attractive but carry steep early repayment penalties that can wipe out the profitability of an investment project. Exit fees during the first year can be as high as 5% with some buy to let mortgage companies.
  • Use an expert broker to get the best deals. Brokers work with the whole of the sector and have access to mortgage products and deals that are not on the open market. We also negotiate on your behalf, achieving bespoke arrangements that a lender would not offer to an individual application.
Can I Get a Mortgage for a Buy to Let Business?

Indeed, many landlords decide to incorporate their business or create a company to manage the rental income from their buy to let portfolios.

Although a lot depends on your tax brackets and other income, it can be considerably more tax-efficient to own your rental properties through a business rather than as an individual.

While commercial buy to let mortgages are less common, they're likely to grow in popularity as tax relief reforms make it different for landlords to maintain steady profit.

How Do I Compare Buy to Let UK Mortgage Products?

Working out a like-for-like comparison is all but impossible on a price comparison site! Likewise, you might have a quote, with some fees rolled up or others itemised.

It isn’t as simple as comparing the interest rates since the total expenses will include other factors, such as exit fees, arrangement charges or annual administration fees.

Most buy-to-let mortgage deals are more expensive than a residential product, but it pays to shop around and use a broker to highlight the most competitive rates, directly comparing all the cost elements.

The cheapest buy to let mortgages tend to come with rates from at least 2%, with upfront fees ranging from £1,495 to £1,999 - although there are a few without initial charges.

Other mortgages look like they're a great deal since the advertised interest rate is low.

However, if the arrangement fee is charged as a percentage of the total borrowed, it may be considerably more expensive than an alternative product with zero set-up costs.

What is Interest Cover Ratio on a Buy to Let Mortgage?

Lenders use all sorts of metrics to assess each mortgage application.

For buy to lets, the interest cover ratio, or ICR, shows them how much you're likely to make in rental income profit per month.

From there, the lender will stress test the application, using a nominal interest rate, usually around 5.5%.

The stress test shows how much your rent covers the mortgage costs and whether you'd be able to afford the interest payments if interest rates - and therefore your monthly mortgage interest - were to rise.

Of course, a fixed rate deal circumvents the risk a little, but at some stage, you're going to either switch onto the lender's Standard Variable Rate or need to refinance your buy to let mortgage elsewhere.

Each lender has a different rule, but they work on a threshold and won't lend if your ICR figure isn't over that cap.

For example, a 125% stress test is a standard minimum, meaning your rent makes up 125% of the interest charge per month.

If you're in a higher tax bracket, the threshold will be 145%, so the lender is confident you won't end up in financial difficulty.

How Does Remortgaging Work on a Buy to Let Mortgage?

Remortgaging, in essence, means you take out a new loan, use the borrowing to pay back your old provider, and then start making further payments to your new buy to let mortgage lender.

Refinancing can be highly beneficial, particularly when tax rates drop or mortgage interest tax relief rules change.

While many lenders steer clear of cashback offers or similar, you can remortgage provided you aren't in a fixed period contract and usually reduce your monthly outgoings by quite some way.

You can withdraw from a fixed-term agreement, but the early exit penalties usually mean it isn't a financially viable option.

What is an Accidental Landlord?

You become an accidental landlord if you end up with tenants - and hadn't planned to. For example, say you inherited a property or needed to move back into a rental accommodation.

If you decide to let your home, you need to contact your mortgage provider since they may not be happy to continue with your existing mortgage since the residential property is now a buy to let.

Some lenders might agree to leave things as they are if the change in circumstances is temporary. More likely, you'll need to refinance onto a buy to let mortgage.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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