The buy-to-let phenomenon took off perhaps 20 years ago and those who invested at that time will have experienced huge returns on their original investment. The availability of buy-to-let mortgages has allowed the masses to invest in property in a way which was only available to the very wealthy previously.

How Does A Buy-To-Let Mortgage Work?

Essentially, the difference between a residential mortgage and a buy-to-let mortgage is that with the former, the lender is concerned about the borrower’s personal income as this will be used to pay the loan; with buy-to-let mortgages, the lender is concerned about the level of rental income that the property itself can generate.

Different lenders require different levels of rental income when deciding on whether to lend or not. Typically, a lender will want to know that the achievable monthly income is at least 145% of the monthly mortgage, based on a rate of 5.5%. However, as with residential mortgages, different companies will amend this calculation depending on their appetite to lend money in different scenarios.

Portfolio Landlords

Regulatory changes a few years ago affected the way that portfolio landlords must now be assessed when applying for further lending. This refers to individuals with four or more properties. The underwriters must now consider the overall portfolio, not just the property upon which finance is being sought. Understandably, this has caused some consternation amongst some of our larger property investor clients. However, every lender interprets the rules in their own way. As we understand more about how each lender views a portfolio, it is becoming easier to place cases with the most appropriate organisation. We have already successfully processed re-finance cases for a number of our portfolio landlord clients.


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About Clifford Davis

Clifford Davis is a premier provider of property-related financial advice. Based in Barnet, North London, we pride ourselves on being able to advise and to provide guidance in all areas of property-related finance.

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Frequently asked questions

Answers to the most common question we get asked
What is a Buy to Let mortgage in the UK?
A Buy to Let mortgage is a loan designed for individuals who want to purchase residential properties for the purpose of renting them out to tenants. These mortgages are typically intended for investment properties rather than owner-occupied homes.
Can I live in a property with a Buy to Let mortgage in the UK?
No, Buy to Let mortgages are intended for properties that will be rented out. These mortgages are not for owner-occupied residences.
Are Buy to Let mortgage rates higher than standard residential mortgage rates in the UK?
Buy to Let mortgage rates are often higher than standard residential rates due to the perceived higher risk associated with investment properties. Rates can vary depending on the lender and the specific circumstances of the borrower.
What are the tax implications of Buy to Let properties in the UK?
Buy to Let properties in the UK are subject to various taxes, including income tax on rental income, stamp duty land tax, and capital gains tax when you sell the property.
How do I apply for a Buy to Let mortgage in the UK?
To apply for a Buy to Let mortgage, you'll need to provide details about the property, your financial information, and rental income projections. You can apply directly to Buy to Let mortgage lenders or work with a mortgage broker.
Who is eligible for a Buy to Let mortgage in the UK?
Eligibility for a Buy to Let mortgage depends on factors such as your creditworthiness, the rental income potential of the property, and the property's value. Lenders may also have minimum income and age requirements.
How is the rental income assessed for a Buy to Let mortgage in the UK?
Lenders typically assess the potential rental income of the property as part of the mortgage application. The rental income must cover the mortgage payments, and lenders often require a rental income of around 125-145% of the mortgage payment.
Can I get a Buy to Let mortgage for a property that needs renovation?
It is possible to obtain a Buy to Let mortgage for a property that needs renovation, but the property's condition may affect the terms and loan-to-value (LTV) ratio.
What are the responsibilities of a Buy to Let landlord in the UK?
Buy to Let landlords in the UK have various responsibilities, including maintaining the property, ensuring safety and compliance with regulations, and providing a secure and habitable environment for tenants.
Can I use a Buy to Let mortgage for short-term or holiday rentals?
Buy to Let mortgages are typically intended for long-term residential rentals, not short-term or holiday rentals. Using a Buy to Let property for short-term rentals may breach the terms of your mortgage agreement.
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