Buying your first rental property: what buy to let lenders look at

Buying a rental property is different from buying a home to live in. A buy to let mortgage is assessed mainly on the rent the property could earn, and the rules on deposits, costs and tax are different too. This guide covers the main points for a first-time landlord.

How lenders assess buy to let

Most lenders carry out a rental coverage test. They check that the expected rent is higher than the mortgage interest by a set margin, and the margin often falls somewhere in the region of 125% to 145%, depending on the lender and on how you own the property. A higher interest rate or a larger loan reduces the amount you can borrow under this test. Lenders also look at your income, your experience as a landlord and your credit history.

The deposit

Buy to let deposits are usually larger than for a residential mortgage. Many lenders ask for at least 25% of the price, and a bigger deposit can widen your choice. Remember that a mortgage must still be paid when the property is empty or in need of repair, so it is sensible to keep a reserve.

Buying personally or through a company

Some landlords buy in their own name and others through a limited company. The two are assessed differently by lenders and are taxed differently, and what is right depends on your circumstances. Please take advice from a qualified tax adviser before you decide. We can explain how mortgages for each work.

Costs to plan for

• The deposit
• Legal fees and a valuation
• Tax on the purchase, including any extra charge that applies to additional properties
• Letting agent fees, if you use one
• Insurance, safety certificates and maintenance
• Arrangement fees on the mortgage

Shared houses and licences

If you plan to let a property to several unrelated people, it may be a house in multiple occupation, or HMO. HMOs are assessed differently by lenders, fewer lenders offer them, and a licence may be needed. Councils can also apply planning rules to HMOs, so check with the council before you buy.

Letting a home you used to live in

If you are moving and want to keep your current home as a rental, your existing lender's permission may be needed, and you may need to switch to a buy to let mortgage. We can explain the options.

Find out more

Read more about our buy to let mortgages or find your area on our areas we cover page.

Talk it through

Rental income is not guaranteed, and each purchase needs careful figures. If you would like to talk through a purchase, get in touch.