Buy-to-Let Guide UK: Landlord Mortgage Basics
Planning a buy-to-let investment? Here is how deposit requirements, rental yield, Section 24 tax rules and running a portfolio tax-efficiently actually work.
Buy-to-let is still one of the most common ways people invest in UK property. Around 2.65 million landlords look after roughly 4.6 million privately rented homes, according to the English Housing Survey. The rules have tightened over the past few years, and the two changes landlords notice most are the phasing out of mortgage interest tax relief under Section 24 and the 3% stamp duty surcharge on additional properties. A rental can still pay you every month and grow in value over time, and that is why so many people keep buying.
A buy-to-let (BTL) mortgage is a mortgage built for a property you plan to rent out rather than live in. It differs from a residential mortgage in a few ways that matter. The deposit is bigger, usually 25% at the least. The interest rate sits a little above the residential equivalent. And the affordability check rests mainly on the rent the property is expected to earn, not your own salary. It pays to understand this before you buy, because setting it up the wrong way can cost you thousands in tax you did not need to pay, or leave you stuck when it is time to remortgage.
This guide covers the parts of buy-to-let that catch people out: how the mortgages work, what deposit you’ll need, how lenders test affordability using rental coverage ratios, the tax you have to plan for (Section 24 and capital gains tax included), what buying through a limited company does and does not do for you, and the rules that come in once you become a portfolio landlord with four or more mortgaged properties. Our BTL calculators are linked throughout, so you can put your own figures in as you read.
How buy-to-let mortgages work
A buy-to-let mortgage is one built for a property you plan to rent out rather than live in. A residential lender looks mainly at your personal income. A buy-to-let lender looks first at the rent the property is expected to bring in, though most will still want you to have a minimum personal income of around £25,000 a year.
Most buy-to-let mortgages are interest-only. Your monthly payment covers the interest and nothing else, so the amount you borrowed (the capital) stays the same for the whole term. You clear that balance later, usually by selling the property, though you can repay it other ways too. Keeping the monthly payment low leaves more of the rent in your pocket, which is why landlords tend to choose it.
A buy-to-let mortgage is one built for a property you plan to rent out rather than live in. A residential lender looks mainly at your personal income. A buy-to-let lender looks first at the rent the property is expected to bring in, though most will still want you to have a minimum personal income of around £25,000 a year.
Most buy-to-let mortgages are interest-only. Your monthly payment covers the interest and nothing else, so the amount you borrowed (the capital) stays the same for the whole term. You clear that balance later, usually by selling the property. Our repayment calculator lets you compare interest-only and full repayment side by side.
BTL vs Residential Mortgages
| Buy-to-Let Mortgage | Residential Mortgage |
|---|---|
| Minimum 25% deposit (some lenders 20%) | Deposits from 5–10% |
| Affordability based on rental income | Affordability based on personal income |
| Most are interest-only | Mostly repayment (capital + interest) |
| Rates slightly higher than residential | Typically lower interest rates |
| Minimum personal income usually £25,000 | No minimum income requirement |
| 3% stamp duty surcharge on top of standard rates | Standard stamp duty rates apply |
Don’t use a residential mortgage for a rental
Letting a property on a residential mortgage without telling your lender breaks the terms of that mortgage. If the lender finds out, it can ask for the whole loan back straight away. Get the right mortgage in place before any tenant moves in.
Deposit requirements and affordability
You need a bigger deposit for a buy-to-let than for a home you live in. Most lenders ask for at least 25% of the property’s value, which puts your loan-to-value (the size of the mortgage against what the property is worth) at a maximum of 75%. A few specialist lenders stretch to 80% or even 85%, but the rate climbs noticeably the more you borrow.
To check the mortgage is affordable, lenders use a rental coverage ratio, sometimes called the interest coverage ratio or ICR: the expected monthly rent set against the monthly mortgage payment. Most want the rent to be at least 125% to 145% of that payment, worked out at a stressed interest rate (usually 5.5%, or the pay rate plus a margin, whichever is higher).
You need a bigger deposit for a buy-to-let than for a home you live in. Most lenders ask for at least 25% of the property’s value, which puts your loan-to-value (the size of the mortgage against what the property is worth) at a maximum of 75%. A few specialist lenders stretch to 80% or even 85%, but the rate climbs noticeably the more you borrow.
To check the mortgage is affordable, lenders use a rental coverage ratio, sometimes called the interest coverage ratio or ICR: the expected monthly rent set against the monthly mortgage payment. Most want the rent to be at least 125% to 145% of that payment, worked out at a stressed interest rate.
Typical BTL requirements
Lower tax bracket advantage
Some lenders apply a lower rental coverage ratio, 125% rather than 145%, if you are a basic-rate taxpayer or the property sits in a limited company. That can mean a larger mortgage for the same rent, or the same mortgage on a lower rent, depending on where you fall for tax.
Understanding rental yield
Rental yield is your yearly rental income shown as a percentage of what the property is worth. It is the figure landlords reach for most often when they judge whether a property is worth buying. There are two versions of it. Gross yield is worked out before any costs. Net yield is what is left after expenses such as management fees, maintenance, insurance and void periods (the weeks a property sits empty between tenants).
Across the UK, gross yields tend to sit around 3–4% in London and the South East and reach 7–9% in parts of the North West, North East and Scotland. The catch is that higher-yielding areas often see slower price growth, so most investors look for a middle ground between the monthly income and the property gaining value over time.
Rental yield is your yearly rental income shown as a percentage of what the property is worth. It is the figure landlords reach for most often when they judge whether a property is worth buying. There are two versions of it. Gross yield is worked out before any costs. Net yield is what is left after expenses such as management fees, maintenance, insurance and void periods (the weeks a property sits empty between tenants).
How to calculate rental yield
- 01
Find the annual rent
Multiply the monthly rent by 12. For example, if the property rents for £850 per month, your annual rent is £10,200.
- 02
Calculate gross yield
Divide the annual rent by the property value, then multiply by 100. For a £200,000 property with £10,200 annual rent: £10,200 ÷ £200,000 × 100 = 5.1% gross yield.
- 03
Deduct your annual costs
Subtract annual expenses: letting agent fees (typically 8–12% of rent), maintenance (£1,000–£2,000), insurance (£200–£400), void periods (allow 1 month), and any ground rent or service charges.
- 04
Calculate net yield
Divide your net annual income (rent minus costs) by the property value × 100. This gives you a more realistic picture of your return. Aim for a net yield of at least 3–4% to cover mortgage costs and generate profit.
Run the numbers
- BTL Maximum Mortgage CalculatorFree tool
See how much you could borrow for a buy-to-let property based on expected rental income and deposit amount.
- BTL Maximum Rent CalculatorFree tool
Work out the minimum rent you’ll need to charge to meet lender affordability requirements for your target property.
- Stamp Duty CalculatorFree tool
Calculate your total stamp duty bill including the 3% buy-to-let surcharge, so you know the true upfront cost of your investment.
Tax implications for landlords
Tax for UK landlords has changed a lot since 2017. The biggest shift is Section 24 of the Finance Act 2015. It took away the right individual landlords once had to take their mortgage interest off their rental income before working out the tax. In its place you get a basic-rate tax credit of 20% on the interest you pay. For higher-rate and additional-rate taxpayers, that adds up to a good deal more tax than the old rules did.
There are other taxes to budget for too. You pay capital gains tax (CGT) on the profit when you sell a rental, stamp duty land tax (SDLT) with its 3% surcharge on additional properties, and income tax on the rental profit you are left with each year.
The tax rules for UK landlords have changed a lot since 2017. The biggest shift is Section 24 of the Finance Act 2015. It took away the right individual landlords once had to take their mortgage interest off their rental income before working out the tax. In its place you get a basic-rate tax credit of 20% on the interest you pay.
So if you’re a higher-rate (40%) or additional-rate (45%) taxpayer, you can end up taxed on rental “profit” that isn’t really there once the mortgage is paid. That is why many landlords now look at the limited company route.
Key taxes for BTL landlords
Income Tax on Rental Profits
- Rental income is added to your other income and taxed at your marginal rate (20%, 40%, or 45%).
- You can deduct allowable expenses: letting agent fees, repairs (not improvements), insurance, and accountancy fees.
Section 24 Mortgage Interest
- Individual landlords can no longer deduct mortgage interest as an expense.
- Instead you get a 20% tax credit on the interest, which leaves higher-rate taxpayers paying noticeably more.
Stamp Duty Surcharge
- An additional 3% is added to every band of stamp duty when purchasing additional residential property.
- On a £250,000 BTL purchase, this adds £7,500 to your stamp duty bill.
Capital Gains Tax (CGT)
- When you sell a rental property, gains above your annual CGT allowance (£3,000 for 2024/25) are taxed at 18% (basic rate) or 24% (higher rate).
- CGT on residential property must be reported and paid within 60 days of completion.
Section 24 can push you into a higher tax band
Section 24 counts your full rental income, before any mortgage interest, as part of your total income. That can tip a basic-rate taxpayer into the higher-rate band even when the actual cash left over is small. Some people call it the “Section 24 tax trap”, and it matters most for landlords carrying large mortgages.
Buying through a limited company
Because of Section 24, more landlords are buying their rentals through a limited company, usually a Special Purpose Vehicle (SPV) set up just to hold property, rather than in their own name. A company can still treat mortgage interest as a business cost and deduct it. Its corporation tax, currently 25% on profits over £250,000 and a small-profits rate of 19% under £50,000, often works out below the mix of income tax and Section 24 that a higher-rate taxpayer would face.
A company is not the right answer for everyone, though. You take on extra costs, including setting the company up and paying an accountant, and getting money back out of it (as salary or dividends) is taxed again in your own hands. What works best comes down to your tax bracket, how many properties you hold, and whether you actually need the rental income to live on.
Because of Section 24, more landlords are buying their rentals through a Special Purpose Vehicle (SPV) limited company, a company set up just to hold property, rather than in their own name. A company can still deduct mortgage interest as a business cost, and its corporation tax often works out below the mix of income tax and Section 24 that a higher-rate taxpayer would face.
Personal name vs Limited company
| Personal name | Limited company (SPV) |
|---|---|
| Simpler to set up and manage | Mortgage interest fully deductible against profits |
| Wider choice of mortgage products | Corporation tax at 19–25% (often lower than income tax) |
| Lower rates than limited company BTL | Easier to add business partners or plan inheritance |
| No company admin or accountancy costs | Higher mortgage rates and fees |
| Section 24 applies, so mortgage interest is not deductible | Additional accounting and filing obligations |
| Profits taxed at your marginal income tax rate | Extracting profits attracts dividend tax |
There’s no one-size-fits-all answer. A landlord with two properties and basic-rate tax may be better off in their personal name, while a portfolio landlord in the 40% bracket could save thousands a year through a limited company.
Portfolio landlord rules
Since September 2017 the Prudential Regulation Authority (PRA), the body that sets lending standards for banks, has run separate rules for portfolio landlords. A portfolio landlord is anyone with four or more mortgaged buy-to-let properties. If that is you, lenders have to look harder at your application and will assess your whole property portfolio, not just the one you are buying.
None of this stops you getting a mortgage as a portfolio landlord. It does mean more paperwork and a longer process. A broker who handles these cases regularly earns their keep here: they can present your portfolio well and point you to the lenders that take the most sensible view of it.
Since September 2017 the Prudential Regulation Authority (PRA) has applied separate rules to portfolio landlords, meaning anyone with four or more mortgaged buy-to-let properties. If that is you, lenders have to scrutinise your application more closely. Many portfolio landlords are self-employed too, which adds another layer to how lenders check income, so a specialist broker is worth having on your side for the extra requirements.
What portfolio landlords need to provide
Full property schedule
- A spreadsheet listing every property you own: address, current value, outstanding mortgage balance, monthly rent, mortgage payment, lender name, and deal expiry date.
Business plan
- Some lenders ask for a brief business plan outlining your investment strategy, how you manage your properties, and your plans for the portfolio over the next 3–5 years.
Cash flow forecast
- Evidence that your portfolio is cash-flow positive or that you have sufficient personal income to cover any shortfalls, including stress-tested scenarios at higher interest rates.
Asset and liability statement
- A summary of your total assets (property values, savings, investments) against total liabilities (mortgages, loans, credit commitments) to demonstrate overall financial health.
Lenders vary widely on portfolio rules
Lenders draw the line in different places. Some cap portfolios at 10 properties, others allow 20 or more. They also treat your background portfolio differently: a few stress-test everything you own, while others only look at the property in front of them. A broker saves you real time by pointing you at the right lender from the start.
Plan your next investment
Related guides
- Stamp Duty Explained
See how the 5% additional-property surcharge works and how SDLT bands apply to landlords.
- Mortgage Rates Explained
Fixed or tracker: work out which rate type suits your rental cash flow and plans.
- Remortgage Guide
Coming to the end of your BTL deal? Learn when and how to switch for a better rate.
- First-Time Landlord Guide
New to buy-to-let? Our beginner’s guide runs from the deposit through to finding your first tenants.
Frequently asked questions
- Regulator
- FCA register
- Updated
- 24 February 2026
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