Buy-to-let mortgages explained

How BTL mortgages differ from residential

A buy-to-let mortgage is a commercial lending product, even though the security is a residential property. The key differences from a residential mortgage:

Rental income, not salary, is the primary test. While lenders do consider your income and credit profile, the mortgage is primarily underwritten on whether the expected rental income covers the mortgage payment at a sufficient margin.

Interest-only is standard. Most buy-to-let mortgages are taken on an interest-only basis. You pay only the interest each month - the capital balance remains unchanged throughout the mortgage term. This keeps monthly payments lower and maximises cashflow, but means you need an exit strategy (typically selling the property or remortgaging) to repay the capital. Repayment BTL mortgages exist but are less common.

Higher deposits required. Most lenders will not lend more than 75% of the property's value. A 25% deposit is the minimum. Some specialist lenders go to 80% LTV but rates are significantly higher.

Personal use is prohibited. A BTL mortgage explicitly prohibits living in the property yourself or letting it to close family members. Doing so would be mortgage fraud.

The mortgage is not regulated. Consumer BTL mortgages (where the landlord once lived in the property or wants to let it to a family member) are regulated by the FCA. But most investment BTL mortgages are not regulated, meaning the consumer protections that apply to residential mortgages do not apply.

The Interest Coverage Ratio (ICR) stress test

The ICR is the central test a lender uses to decide whether the property generates enough rent to service the mortgage.

ICR formula: Monthly rent / Monthly mortgage interest payment

Most lenders require an ICR of 125% minimum for basic rate taxpayers and 145% for higher rate taxpayers. This means: - For basic rate taxpayers: rent must be at least 1.25x the interest payment - For higher rate taxpayers: rent must be at least 1.45x the interest payment

The stress is applied at a notional interest rate, typically 5.5% or the product rate + 2%, whichever is higher. This is to ensure the mortgage remains serviceable if rates rise.

Example at a 5.5% stress rate: - £112,500 mortgage (75% of £150,000) - Annual interest at 5.5%: £6,188 - Monthly interest: £516 - Required rent for basic rate taxpayer at 125% ICR: £645/month - Required rent for higher rate taxpayer at 145% ICR: £748/month

If the actual market rent is below these thresholds, the lender will not advance the mortgage at that LTV. You would need to increase your deposit to reduce the mortgage balance until the ICR test is met.

LTV tiers and their effect on rates

LTV (loan-to-value) is the mortgage balance expressed as a percentage of the property value. A lower LTV means less lending risk for the lender, and they reward this with lower rates.

Typical LTV tiers for BTL mortgages (2026): - 60% LTV: Best available rates, typically 4.2-4.8% on 5-year fixed - 65% LTV: Slightly higher, typically 4.4-5.0% - 70% LTV: Moderate, typically 4.5-5.2% - 75% LTV: Standard minimum rate, typically 4.7-5.5% - 80% LTV: Limited lenders, typically 5.5-6.5%, specialist lenders only

These are approximate ranges. The actual rate you receive depends on your credit score, track record as a landlord, the property type, and the lender's current appetite for BTL lending.

Moving from 75% to 60% LTV requires a substantially larger deposit but can save thousands in interest over a 5-year fixed term. Model both scenarios before deciding on your deposit size.

Limited company mortgages

If you are buying inside a limited company (most commonly a Special Purpose Vehicle, or SPV), the mortgage options are different.

The number of BTL lenders willing to lend to limited companies is smaller than the full BTL market, though this has improved considerably over the last few years. Most high street banks do not offer limited company BTL mortgages, so you are typically looking at specialist buy-to-let lenders such as Paragon, Precise Mortgages, Keystone, Foundation Home Loans, and others.

Rates are typically 0.2-0.6% higher than equivalent personal name mortgages, reflecting the additional complexity and risk from the lender's perspective. This rate premium needs to be factored into your assessment of whether the limited company structure makes financial sense.

The lender assesses the company, not just you. A newly formed SPV with no trading history will be assessed on the director's personal financial position and the property's rental income. A company with an existing portfolio will be assessed on both.

Personal guarantees are standard. Directors of limited companies must typically provide personal guarantees on BTL mortgages, meaning your personal assets are at risk if the company defaults. The limited liability protection of the company does not extend to the mortgage.

Portfolio landlord considerations

Once you own four or more mortgaged BTL properties, most lenders classify you as a "portfolio landlord." This triggers additional underwriting requirements.

Portfolio landlords are typically required to provide: - A full schedule of all existing properties, including values, mortgages, rents, and equity - Evidence that the entire portfolio is self-financing (not just the property being purchased) - Business plan for the portfolio in some cases

Some lenders exit the market entirely for portfolio landlords. Others specialise in it. Understanding which lenders are appropriate for your stage is one of the key reasons to work with a specialist BTL mortgage broker rather than approaching lenders directly.

A good broker with experience in portfolio lending will access a wider range of lenders, know which ICR calculations each lender uses (they vary), and negotiate rates that a direct applicant would not achieve. Broker fees are a cost, but they frequently pay for themselves in better terms.

What you need before applying

Lenders will request the following as standard for a BTL mortgage application: - Three months personal bank statements - Last two years self-assessment tax returns (if self-employed) or P60s (employed) - Evidence of existing rental income (if you own other BTL properties) - Limited company accounts and filing history (if buying in company name) - Proof of deposit funds - Details of the property: full address, description, and planned tenancy

The application process typically takes 4-8 weeks from instruction to mortgage offer, longer for complex cases or limited company purchases. For auction purchases with a 28-day completion requirement, the timeline is tight - speak to a broker before bidding, not after.

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