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Buy to let 80% LTV Mortgages

Can you apply for a buy to let mortgage with a 20% deposit? Our guide to 80% LTV mortgages for rental landlords answers all the FAQs about investment property financing.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-07-17
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80% LTV & 20% Deposit Mortgages

It's no secret that buy to let mortgages usually have a higher deposit requirement - and, therefore, a lower Loan to Value (LTV) limit.

That's because a buy-to-let mortgage is inherently riskier for a lender than a residential loan. If you're buying a property to live in, you can get a mortgage with as little as a 5% deposit (ordinarily through a guarantee scheme) but will need at least a 20% deposit for an investment acquisition.

In this guide, the mortgage Brokers team explains all the ins and outs of getting an 80% LTV mortgage on a buy-to-let and the application criteria your lender will likely assess when deciding whether to approve your application.

For more information about the best buy-to-let mortgages at 80% LTV, please give us a call!

Choosing the Best Buy-to-let Mortgage 80 LTV

Purchasing an investment property with a 20% deposit puts you in a relatively stable position. Of course, that all depends on your circumstances, which we'll explain in a bit more detail shortly.

However, suppose you're an experienced landlord with a good credit score and can demonstrate affordability.

In that case, there are several competitive lenders out there who will consider an applicant at 80% LTV.

The key to remember is that an investment mortgage is always interest-only, except in very unusual circumstances. Lenders look at the projected rental income as the primary measure of affordability.

Therefore, you have more choices if you have a 20% deposit, and your rental income will comfortably cover the monthly interest.

Our advice is always to consult a professional buy-to-let broker.

Many of our exclusive deals offer extremely attractive interest rates and are far more beneficial for professional landlords than any product you'll find on the open market!

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What Are the Eligibility Criteria For the Best 80 LTV Buy-to-let Mortgages?

So, we've mentioned eligibility, and you must understand how this works. Each lender has policies and rules about who they will lend to - and those policies vary wildly between lenders.

For example, one bank might loan only to individuals who will be under 75 at the end of the mortgage term, even if that's a standard length 25-year mortgage.

Other niche lenders have no upper age limit and will happily lend to retired landlords with sufficient capital to pass the affordability checks.

As a rough guide, most 80% LTV buy-to-let mortgage lenders will look for:

  • Rental income that exceeds the interest charge by at least 125%
  • A minimum annual revenue, often starting from £25,000.
  • Good credit score and history - many banks have a nominal 'pass mark', but a specialist lender won't always rely on this to decide.

If you've been automatically turned down, likely, you don't meet one of these essential eligibility criteria.

However, it's worth reiterating that these are only general terms and don't apply across the buy-to-let lending sector.

As whole-of-market brokers, Revolution can negotiate great deals on your behalf with lenders that take a flexible view, so do get in touch if you're concerned about being rejected for a buy-to-let mortgage.

Why Does My Tax Bracket Matter on an 80 LTV Buy-to-let Mortgage Calculator?

As a landlord, your tax bracket matters because a lender needs to be confident you can afford to keep up with the interest-only mortgage payments.

You might use an 80 LTV buy-to-let mortgage calculator and be asked about your tax bracket, and here's why:

  • If you pay basic rate tax, you pay 20% of your profit. The lender will want to see a projected rental income of 125% of the mortgage interest. For example, a mortgage costing £800 per month needs rent of £1,000 to be affordable.
  • Taxpayers in the higher rate bracket earn less profit from their rent due to their higher tax, and so a lender will want to see rent of 145% of the mortgage interest. E.g. a mortgage costing £800 a month needs to demonstrate £1,160 a month rental income to qualify.
  • This factor increases again for additional rate taxpayers, who need to prove that the rent will be 160% of their interest - your same £800 mortgage needs to generate £1,280 in monthly rental income.

Most lenders will also use a stress test to make sure they are lending responsibly.

Ordinarily, that means calculating the monthly interest at a nominal 5% rate and applying the same affordability analysis to ensure the payments are suitably covered.

Can I Get 80 LTV Buy-to-let Interest Only Mortgages As a Higher Rate Taxpayer?

If you're a higher rate taxpayer, you might find it more challenging to qualify for a higher LTV on an 80% buy-to-let mortgage - but the good news is that this isn't universal.

For example, some specialist lenders will consider applicants outside the typical criteria and assess each application on its merit.

You can also use several options, such as applying to a lender who bases affordability on your income, not the rental revenue from the specific property.

Another solution is to use top-slicing, whereby you 'top up' your income with other earnings to show that you can afford the repayments.

The idea is that you need to demonstrate that you can cover the interest on your 80% LTV mortgage, even if you don't fit the generic 160% interest cover ratio.

Lenders all have different policies about whether they accept top-slicing, and it usually works like this:

  • As long as you meet the basic 125% interest cover, you can use top-slicing to add to your income for the affordability assessment after that.
  • You need to earn a minimum amount per year. This figure could be anything from £10,000 to £40,000 depending on the lender - in addition to your rental income.
  • Normally you'll also need to comply with more rigorous basic criteria, such as being below retirement age and having a minimum number of years experience.

If you're interested in supplementing your rental income with top-slicing to quality for an 80 LTV buy-to-let mortgage, please give the Revolution Brokers team a call, and we'll run through the options!

What Are the Benefits of 80 LTV Buy-to-let Mortgages?

A 20% deposit is towards the lower end for a buy-to-let mortgage, so you must work with a skilled broker to compare the deals available.

Often, a fixed-rate mortgage offers the most secure bet since you have a stable interest rate and can easily budget for the monthly cost.

However, it's also vital to weigh up the pros and cons with a tracked rate, which may, in some circumstances, be cheaper.

Five-year terms are regularly the best option because you'll pay higher charges on shorter terms and longer periods since the lender has fewer assurances that you'll remain a customer for the duration or how interest rates will look in over five years.

The larger a deposit you can offer, the more competitive your interest rates are, so a 25% deposit rather than 20% may considerably improve your approval chances and quoted charges.

What Income Do I Need for a Buy-to-let Mortgage 80 LTV Interest Only?

Buy-to-let mortgages based on income aren't a standard product or well known.

Still, they can be an effective solution if you're struggling to hit affordability metrics based on your projected rental income.

Pay rate buy-to-let mortgages mean that the lender considers your overall income picture, rather than deciding based solely on the earnings from the property you wish to mortgage.

Some examples of a situation where this approach may be beneficial include:

  • Looking for an 80 LTV buy-to-let mortgage on a higher value residence, but that doesn't currently provide sufficient rental income to pass a stress test.
  • Buying lower rental yield investment homes to improve your portfolio in up and coming areas, but that don't offer enough returns to cover the interest by 125% or more.
  • Investing in properties where the existing rental income is low but is anticipated to increase soon.

As we've explained earlier, stress testing can mean that an otherwise affordable loan becomes less so and is rejected by a lender.

If you can't offer a higher deposit and aren't willing to accept higher interest rates on your 80% LTV buy-to-let mortgage, then a pay rate based loan could solve the problem.

For more information about any aspect of applying for an 80 LTV mortgage or securing the best rates on the market, please give us a call on 0330 304 3040!

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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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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