What is a Buy to Let mortgage?

Find out how to buy a house to rent out with a Buy to Let mortgage.

What is a Buy to Let mortgage?

A Buy to Let mortgage is for people looking to buy a property to rent out, rather than live in it.

Most Buy to Let mortgages are interest only. This means that the monthly repayments will only pay off the interest, not the amount owed on the mortgage (known as capital). Instead, the capital will be paid off in full at the end of the agreed term.

How to apply for a Buy to Let mortgage

If you’re looking to apply for a Buy to Let mortgage, you’ll usually need a bigger deposit than for a residential mortgage. You’ll likely need at least a deposit of 25% of the house value.

 

How much you can borrow for a Buy to Let property will depend on how much rent you expect to get. Most lenders will want to see a rental income of 25% to 30% over and above your monthly repayments.

 

You’ll usually also need to provide all the usual evidence about your earnings and your finances. This includes your:

  • Deposit
  • Credit history and salary
  • Any debts
  • How much you’ll make from rent

You might also need the following documents:

  • I.D. such as a driving licence or passport
  • Gas, water or electric bills
  • Proof of existing mortgage statement
  • Proof of additional income
  • P60 form
  • Payslips for the last three months, or proof of income and tax returns if you’re self-employed
  • Bank statements for the last three to six months
  • Proof of your monthly outgoings
  • Details of the property you want to buy

Buy to Let mortgages and Stamp Duty

In England and Northern Ireland, you’ll pay a 3% surcharge on the standard Stamp Duty rate on any Buy to Let property worth over £40,000. From 1st October 2021 you’ll pay the following Stamp Duty rates. Check out the latest Government guidelines for the Stamp Duty rates.

Table showing the Stamp Duty rates for Buy to Let properties

Portion of property price

Standard Stamp Duty Rate

Buy to Let Stamp Duty Rate

Portion of property price

Portion of property price

Standard Stamp Duty Rate

Standard Stamp Duty Rate

Buy to Let Stamp Duty Rate

Buy to Let Stamp Duty Rate

Portion of property price

Up to £125,000

Standard Stamp Duty Rate

0%

Buy to Let Stamp Duty Rate

3%

Portion of property price

£125,001 - £250,000

Standard Stamp Duty Rate

2%

Buy to Let Stamp Duty Rate

5%

Portion of property price

£250,001 - £925,000

Standard Stamp Duty Rate

5%

Buy to Let Stamp Duty Rate

8%

Portion of property price

£925,001 - £1.5m

Standard Stamp Duty Rate

10%

Buy to Let Stamp Duty Rate

13%

Portion of property price

£1.5m+

Standard Stamp Duty Rate

12%

Buy to Let Stamp Duty Rate

15%

In Scotland, you'll pay a 4% Additional Dwelling Supplement (ADS) on the standard Land and Buildings Transaction Tax (LBTT) on Buy to Let properties worth over £40,000. You'll pay the following rates.

Table showing Scotland's Stamp Duty rates for Buy to Let properties

Price Bands (£)

 

Standard LBTT Rate

Buy to Let LBTT Rate

Price Bands (£) 

Price Bands (£)

Standard LBTT Rate

Standard LBTT Rate

Buy to Let LBTT Rate

Buy to Let LBTT Rate

Price Bands (£) 

Up to £40,000

Standard LBTT Rate

0%

Buy to Let LBTT Rate

0%

Price Bands (£) 

£40,001 - £145,000

Standard LBTT Rate

0%

Buy to Let LBTT Rate

4%

Price Bands (£) 

£145,001 - £250,000

Standard LBTT Rate

2%

Buy to Let LBTT Rate

6%

Price Bands (£) 

£250,001 - £325,000

Standard LBTT Rate

5%

Buy to Let LBTT Rate

9%

Price Bands (£) 

£325,001 - £750,000

Standard LBTT Rate

10%

Buy to Let LBTT Rate

14%

Price Bands (£) 

£750,000+

Standard LBTT Rate

12%

Buy to Let LBTT Rate

16%

Pros and Cons: Buy to Let mortgages

Advantages of Buy to Let mortgages

  • Generate an income and cover mortgage repayments – Depending on how much rent you charge and the cost of your monthly repayments, you could find that the property pays for itself. You could also make income from rent payments.
  • Long term investment and gain – Property is generally a long-term investment. You may see the value of your property increase over time. There is no guarantee however, as the value of your property may fall.
  • Offset the costs against tax – You can usually claim back some of the costs of running your rental property on your self-assessment tax return. 

Disadvantages of Buy to Let mortgages

  • Stamp Duty surcharge – Landlords must pay a 3% stamp duty surcharge. 
  • The costs of running an empty property – There are times your property might be empty. You’ll still have to pay council tax bills, mortgage repayments and other maintenance costs, without the rental income to fund them. 
  • Damage to the property – You will have to cover any damage or repairs to the property.

The content on this page is for reference and does not constitute financial advice. For impartial financial advice, we recommend government bodies like the Money Advice Service.

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