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Buy-to-let mortgages explained

Close up of a hand signing a mortgage agreement while a lender gestures at the paper.

A buy-to-let mortgage isn't that different from a regular mortgage. But there are some important differences.

If you've set your sights on a property that you want to rent out, you'll need to make sure you can afford it. A buy-to-let mortgage is one way you can do this. 

But how is it different from a regular mortgage? And what do you need for it? Let's take a look.

We don't compare this type of mortgage - this guide is for informational purposes only. But you can compare remortgages.

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What is a buy-to-let mortgage?

A buy-to-let (BTL) mortgage caters for landlords who want to rent their property out.

On the whole, it works like a regular mortgage. But the eligibility criteria and requirements might be different.

There are two kinds of BTL mortgage - interest only and repayment.

An interest only BTL mortgage is where your repayments only cover the interest.

At the end of the mortgage, you need to pay back the full value of the property.

Some landlords do this so their monthly repayments are lower. They’d then try to sell the property at the end of the agreement and cover the rest.

A repayment BTL mortgage is where your repayments cover the whole amount, including interest.

At the end of the mortgage term, the property is paid for and you own it outright. This means your repayments are usually higher.

How do buy-to-let mortgages work?

BTL mortgages work much in the same way as a regular home mortgage:

· You pay a deposit (a percentage of the property value)

· You make monthly repayments over an agreed period of time.

Interest rates and the amount you need for a deposit tend to be higher on a BTL mortgage.

How can I get a buy-to-let mortgage?

The specifics may vary between lenders. But usually to get a BTL mortgage you need to:

· Be a homeowner already
· Have a good credit record
· Earn £25,000 or more a year
· Be under 70 years of age when the agreement ends.

How much deposit does a buy-to-let mortgage need?

Deposits for BTL mortgages tend to be higher than regular ones. According to the Money Advice Service, it’s around 25% of the total mortgage.

How much can you borrow in a buy-to-let mortgage?

The upper limit on the mortgage amount depends on how much rental income you expect to get.

The Money Advice Service recommends that your rental income should be around 30% higher than your monthly repayments.

Will I need landlord’s insurance to get a buy-to-let mortgage?

There’s no legal need to have landlord's insurance

But your lender may need you to get it as part of the mortgage offer. The policy usually needs to cover the building itself at least.

It's worth thinking about getting landlord's insurance anyway. As well as cover for the building, it could give you extra protection for:

  • Accidental damage

  • Loss of rent

  • Public liability.