How much can I borrow with a Buy-to-Let mortgage?

Like with any mortgage, there are factors that influence how much you can borrow. One thing that is different with a Buy-to-Let mortgage, compared to a residential mortgage, is that lenders will assess the expected rental income. This will usually need to be between 125% to 145% of the monthly mortgage payments.

Another big influencing factor when it comes to how much you can borrow is the deposit amount. Essentially, the more you can put down, the better chance you have of borrowing more.

The maximum you can usually borrow with a Buy-to-Let mortgage is 85% of the property’s value. However, this is quite rare and in most cases you can borrow closer to 75% loan-to-value (LTV). This means you should aim for a deposit of 25% of the property’s value.

What to consider before getting a Buy-to-Let mortgage

Before applying for a mortgage, you’ll have an idea of how much rent the property might demand. However, for the purposes of the Buy-to-Let mortgage affordability criteria, don’t expect the lender to take your word for it. Lenders will typically base their calculations on a rental value provided by a surveyor, either in-house or external.

Keep in mind when planning to get a Buy-to-Let mortgage, that lenders will also look at any void periods. A common approach is to assume that the property will be empty for one month out of the year.

Lenders can also factor in property-related expenditure during the affordability calculation, deducting this from the rental income. Keep these costs in mind when calculating your potential returns on a property. Expenditure that lenders typically consider include:

• Letting agent fees – these are typically 10–15% of the rental income
• Landlord insurance
• Regular safety checks costs, including gas, electrical and fire safety
• Any maintenance or repair costs required

How do lenders work out Buy-to-Let mortgage affordability?

When you apply for a mortgage, your lender will carry out an affordability assessment. For a standard residential mortgage, this involves assessing your verifiable income as well as any monthly outgoings.

However, when it comes to Buy-to-Let mortgages, lenders use a different approach. Typically, they will compare the projected rental income against the mortgage payments, including interest. What this means is that they will be looking for your rental income to be more than the mortgage payment by a set percentage.

The minimum that most lenders require this to be is 125% of the mortgage payment. This will be at a predetermined interest rate of 4.99%. However, with recent changes it’s more common for lenders to look for rental income to be 140% or 145%, with a predetermined rate of between 5%–5.5%.

Certain types of Buy-to-Lets, like Houses in Multiple Occupation (HMOs) can see even higher margins – up to 170%.

Buy-to-Let lenders use a “stress test” during their affordability assessments to help them ensure you can still afford the mortgage even if interest rates were to rise. In most situations lenders will use a predetermined interest rate that considers the potential of a future interest rate rise.

Unless the mortgage product’s interest rate is fixed for five years or more, lenders should base their calculations on the higher of:

• A hike of at least 2% above current rates
• Market projections of future interest rates
• A minimum stress-test rate of 5%–5.5%

Be aware that many lenders also price their mortgage products in LTV tiers. Therefore, if you can put down a larger deposit, you may qualify for more attractive interest rates.