April 2024

Buy To Let Deposit – All You Need To Know in April 2024

If you’re looking to invest in property or own your own home but are finding house prices inhibitive, you might consider getting a buy to let mortgage. With a buy to let loan, you can purchase a property outright or with a deposit and then rent it out to tenants.

If you’re thinking of taking out a buy to let mortgage, it’s important to understand how a buy to let mortgage deposit works and how it differs from a standard mortgage before you begin your mortgage application.

Whether you’re a professional landlord or casual investor, this guide will give you tailored advice for everything you need to know about buy to let loan deposits, including how much you’ll need to put down and where you can get the best mortgage deals.

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What is a buy to let mortgage?

In the United Kingdom, a buy to let mortgage (BTL mortgage) is a mortgage loan specifically designed for the purchase of a property to let out.

The key difference between a buy to let mortgage and a standard residential mortgage is that the monthly payments on a buy to let mortgage are usually lower than on ordinary mortgages because the potential rental income (subject to income tax) from the property is expected to cover most or all of the monthly payment.

Additionally, most buy to let mortgages are interest-only loans, and therefore the monthly repayments can be cheaper than a repayment mortgage.

However, the fees tend to be much higher, and you will need to take into account things like letting agent fees and buildings insurance for your new property.

How do buy to let mortgages work?

A buy to let loan functions in a similar way to a standard residential mortgage. You’ll need to put down a deposit and then make monthly repayments on the loan.

The interest rate on a buy-to-let mortgage is usually higher than the interest rate on standard residential mortgages because the lender will consider the property to be a more risky investment.

The type of mortgage you choose will depend on your personal circumstances and how long you plan to keep the property. There are four main types of mortgages to consider.

Fixed-Rate

With a fixed-rate mortgage, the interest rate is locked in for a set period of time, usually two to five years. This means that your monthly repayments and interest payments will stay the same even if interest rates go up.

Tracker

A tracker mortgage tracks the Bank of England’s base rate plus a margin. So in the event that the base rate goes up, your monthly repayments will increase.

Discounted Variable Rate

With a discounted variable rate mortgage, the interest rate is discounted for a set period of time, usually one to five years. After the discount period ends, the interest rate will revert to the lender’s standard variable rate (SVR).

Variable-Rate

On variable-rate mortgages, the interest rate can go up or down at any time during your mortgage term. This means that your monthly repayments could increase or decrease.

What are the buy to let mortgage requirements?

In order to qualify for a buy-to-let mortgage, you’ll usually need to meet the following criteria:

You’ll need to have a good credit history.
You’ll need to have a steady income from employment or other income, which you’ll need evidence of (such as a self-assessment tax return for the current tax year) to prove you can make mortgage payments.
You will need to be over the age of 21 (some mortgage providers also have an upper age limit).
You’ll generally need to have a deposit of at least 25% of the property’s value (more on this later).

How much can you borrow on a buy to let mortgage?

The amount you can borrow on a buy to let mortgage will depend on the lender and the value of the property.

As a general rule, you’ll be able to borrow up to 85% of the value of the property. So, if you’re looking at rental properties worth £100,000, you could potentially borrow up to £85,000.

However, the amount you can borrow also often depends on how much deposit you put down.

How much deposit do you need for buy to let mortgages?

If you’re thinking of getting into the buy to let market or already own a property that you’re looking to remortgage, then you’ll need to put down a deposit.

There is no official ‘buy to let minimum deposit’; however, the minimum required is generally around 25% of the property value, although some specialist lenders may require a higher deposit. So, if you’re looking at a property worth £100,000, you’ll need to put down a deposit of at least £25,000.

The size of your deposit will have an effect on the interest rate you’re offered and how much money you’ll be able to borrow.

It’s important to remember that with a buy to let mortgage, the rental income from the property will be taken into account alongside your other assets and any other debts or an existing mortgage you have when assessing how much you can afford to repay each month.

"In the United Kingdom, a buy to let mortgage (BTL mortgage) is a mortgage loan specifically designed for the purchase of a property to let out."

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What types of deposits are there?

There are two main types of deposits for mortgages; single lump sum deposits and staggered deposits.

Single lump sum deposit

You’ll need to have the entire deposit available upfront. This can be saved or gifted to you by family or friends, or it could come from the proceeds of selling another property.

Staggered deposits

You will make smaller mortgage payments over time, usually at set intervals such as monthly or quarterly. This type of deposit is often used by people who are looking to remortgage their property, as they may not have the full amount required for a single lump sum deposit.

How much should I put down?

The amount you’ll need to put down as a deposit will depend on a number of different factors, including the value of the property, the type of mortgages you’re considering and the deposit requirements of the lender.

As a general rule, if you put down a lower deposit, you’ll be offered a higher interest rate, and vice-versa. This is because most lenders see a bigger deposit as less of a risk.

It’s also worth noting that some lenders will require a minimum deposit of 25% or even 40% for buy to let mortgages. So it is important to check with your chosen lender before you make any decisions.

How can I fund a deposit for a buy to let mortgage?

House of Multiple Occupancy (HMO)

One option for funding your deposit is to consider house of multiple occupancy (HMO) mortgages.

An HMO mortgage is a type of buy to let mortgage that can be used to purchase a property that will be occupied by multiple tenants. The main advantage of an HMO mortgage is that you can often borrow up to 100% of the property value, which means you won’t need a deposit.

However, HMO mortgages typically have higher rates of interest than standard buy to let mortgages, so it’s important to compare the two before making a decision.

Bridging loan

When it comes to buy-to-let deposits, there are a few options available to you. One option is to take out a bridging loan.

A bridging loan is a short-term loan that can be used to ‘bridge’ the gap between the purchase of a property and the sale of another. The loan is secured against the property you’re buying, which means that if you’re unable to sell your existing property, you could end up losing it.

Bridging loans are typically only available for a period of 12 months or less, so they’re not suitable for long-term investment purposes. However, they can be a good option if you’re looking to buy a property quickly and don’t have the full deposit available upfront.

A gifted deposit

Another option for funding your buy-to-let deposit is to have it gifted to you by a family member or friend. This means that they will give you the money for the deposit, which you can then use to purchase the property.

Gifted deposits are becoming increasingly popular as they allow people to get on the property ladder without having to save up a large deposit themselves. However, it’s important to remember that if you’re given a gift for the purpose of buying a property, the person gifting it to you may be liable to pay CGT (Capital Gains Tax) in that tax year.

Concessionary purchases

If you’re looking to buy a property for investment purposes, you may be able to take advantage of concessionary purchase schemes. These schemes are designed to help people buy properties at a discounted purchase price, which can then be rented out at a higher rate.

The main advantage of these types of schemes is that they can help you get on the property ladder with a smaller deposit than you would normally need. However, it’s important to remember that not all schemes are available to everyone, and some may have strict eligibility criteria.

Personal loans

Another option for funding your deposit is to take out a personal loan. This can be a good option if you have a good credit rating and can afford the monthly repayments and interest payments.

The main advantage of taking out a personal loan is that you’ll know exactly how much you need to repay each month. However, it’s important to remember that personal loans typically have higher interest rates than mortgages, so you’ll need to factor these interest payments into your calculations.

Credit cards

One final option for funding your deposit is to use a credit card. This can be a good option if you have a 0% introductory offer on your credit card, which will allow you to make purchases without accruing any interest.

However, it’s important to remember that credit cards typically have high interest rates, so you’ll need to make sure you repay the full balance before the introductory offer expires.

Which lenders offer buy to let mortgages?

There are many lenders who offer buy-to-let mortgages, including big banks, building societies, and specialist lenders for buy to let mortgages.

Mortgage providers will each have their own criteria for eligibility, so it’s important to compare the different offers before making a decision.

The main things to look for when comparing buy to let mortgage offers are the interest rate, the loan-to-value ratio, and the other fees. You might want to consult a mortgage broker (regulated by the Financial Conduct Authority) if you are looking for a new deal on a mortgage, as they can provide a quality service which covers the whole market.

How much stamp duty will first time buy to let investors pay?

As a first time buyer, you may be eligible for a discount on the amount of stamp duty you pay. The exact amount will depend on the value of the property you’re buying.

What documents are needed for a first-time buyer buy to let loan application?

When applying for a buy to let mortgage, lenders will typically require you to provide proof of income (including any other rental income), as well as a copy of your credit report. They may also ask for additional documents, such as proof of address and ID.

Can I live in my buy to let property?

It’s generally not possible to live in a buy to let property, as most mortgages stipulate that the property must be used as an investment only. However, some lenders may be willing to allow you to live in the property if you’re planning to rent it out at a later date.

Are there any other costs to consider?

As well as the deposit and stamp duty, there are a few other costs to consider when buying a property. These include solicitors’ fees, surveyors’ fees, and mortgage arrangement fees.

You’ll also need to factor against your monthly rental income (on which you will be obliged to pay income tax) the cost of any necessary repairs or renovations, as well as the ongoing costs of running a buy to let property, such as insurance, council tax, and utilities as well as letting agent fees. You might also need to pay capital gains tax on the property itself.

So, if I’m thinking of putting down a deposit for a buy to let mortgage, what do I need to know?

There are a few things to keep in mind if you’re thinking of putting down a deposit for a buy to let mortgage.

Lenders will also take into account your individual financial circumstances when considering how much they’re willing to lend you, so make sure to shop around the mortgage market for different mortgage lenders to get the right rates for you and your deposit capabilities.

It’s important to get professional mortgage advice before making any decisions, as there are a number of different options available, and the implications of each should be fully understood before proceeding.

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch. I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder. Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – [email protected]

Frequently Asked Questions

How do buy to let mortgages work?