What deposit do I need for a buy-to-let mortgage?

Full answer

Buy-to-let mortgages are underwritten differently from standard residential mortgages, and one of the clearest differences is the deposit requirement: while a residential mortgage can sometimes be arranged with as little as a 5% or 10% deposit, mainstream buy-to-let lenders almost universally require a minimum of 25% deposit, meaning a maximum of 75% loan-to-value, with a smaller number of specialist lenders occasionally stretching to 80% LTV (20% deposit) for strong applicants, but usually at a less competitive interest rate. Lenders take this more conservative approach because buy-to-let lending is assessed primarily on the rental income the property is expected to generate, rather than the landlord's personal income alone, and rental income can be more volatile than an employed salary -- affected by void periods between tenants, maintenance costs, and local rental market conditions -- making a bigger equity cushion important to protect the lender if rental income falls short or property values dip. Most buy-to-let lenders apply a rental cover ratio test, commonly requiring the expected monthly rent to be at least 125% to 145% of the mortgage's monthly interest payment (calculated at a stressed notional interest rate, not necessarily the actual pay rate), which effectively limits how much can be borrowed even where a 25% deposit is available. Landlords should also budget for buy-to-let-specific stamp duty costs (the 5% additional property surcharge, or higher regional equivalents), and remember that mortgage interest on a buy-to-let property held personally (rather than through a limited company) only qualifies for a 20% tax credit against rental income tax, not full deduction, under the Section 24 rules introduced in previous years.

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