What is the best buy-to-let mortgage?

7 min Read Published: 08 Jun 2021

Which are the best buy-to-let mortgages?What is a buy-to-let mortgage?

A buy-to-let mortgage is designed for borrowers who intend to rent out the property they are buying rather than living in it. It is the mortgage you will require if you want to rent the property to tenants, as well as if you want to use it as a holiday let. Generally speaking, lenders don't permit you to rent out your property if you have a standard residential mortgage.

The majority of buy-to-let landlords choose to take out interest-only mortgages, which means they have a much lower monthly repayment than if they were paying off the capital as well. The mortgage is typically covered by the rent you charge on the property, with the debt on the property itself only needing to be paid off at the end of the mortgage term.

While the cost of an interest-only mortgage is much lower than for a standard residential repayment mortgage, there are additional costs involved in becoming a buy-to-let landlord, including the initial outlay of between 25%-40% of the property's value as a deposit.

More information about the benefits and potential pitfalls can be found in our article "The complete buy-to-let guide - all you need to know".

What do you need to know before applying for a buy-to-let mortgage?

How much do buy-to-let mortgages cost?

While the interest-only monthly repayment can seem low compared with a repayment mortgage, you can expect to pay a higher Annual Percentage Rate (APR) than you would for a residential product. You also need to add to this the larger deposit that will be required to secure the mortgage.

If you already own a property, you can also expect to pay a 3% levy on stamp duty on your purchase as it will be classified as an "additional property". This will be on top of the usual stamp duty rate. For more information on this, check out our article "Everything you need to know about stamp duty".

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

The total amount you can borrow will be determined by a number of factors:

  • The level of deposit you have
  • The rental income you can reasonably expect to make
  • Your financial circumstances, including your income and credit history

To ensure you have a good buffer, it is a good idea to look for a rental income of between 130%-150% of the total amount you borrow. This allows for the expenses you are likely to occur and the potential for void periods when the property stands empty between tenants.

What returns can you expect on your buy-to-let investment?

The yield you can expect to secure from your buy-to-let property will be determined by the purchase price, the area the property is in and how high the costs are associated with letting and maintaining it. It pays to thoroughly research the market and to speak to local agents who can advise you on the average yields for that area and point you to suitable properties.

In the table below, we outline the average yields for different regions in the UK for 2021:

Region Average rental yield
London 2.83%
South East 3.27%
South West 3.70%
West Midlands 3.85%
East Midlands 3.80%
East 3.41%
North East 3.46%
North West 4.69%
Yorkshire and the Humber 4.56%
Wales 4.31%
Scotland 4.54%

 

For more details, read our article "How much can I make from a buy-to-let investment".

How to find the best buy-to-let mortgage

The optimum buy-to-let mortgage is going to be dependent on your particular circumstances. Below we have outlined the best buy-to-let mortgages currently available in the UK, taking into consideration the initial APR, the monthly repayment, arrangement fees and the Standard Variable Rate (SVR) the product will revert to at the end of the introductory period.

These deals illustrate the typical best buy-to-let mortgage deals for properties valued at £250,000, with a mortgage at 75% LTV. To find the best options for your needs, go to our mortgage best-buy calculator, powered by Habito*, which gives you tailored results.

Best buy-to-let mortgage deals

Based on a property valued at £250,000, with a mortgage at 75% LTV and a mortgage term of 25 years. It is based on an interest-only mortgage with the fees paid upfront.

Cheapest 2-year fixed-rate buy-to-let mortgages

Provider Initial interest rate Monthly payment Upfront fees SVR
Santander 1.55% £242 £1,759 3.35%
Platform 1.65% £257 £2,228 5.00%
Natwest 1.85% £289 £1,025 4.09%

 

Cheapest 5-year fixed-rate buy-to-let mortgages

Provider Initial interest rate Monthly payment Upfront fees SVR
Santander 2.00% £312 £1,759 3.35%
Platform 2.04% £318 £2,228 5.00%
The Nottingham 2.05% £320 £2,024 6.54%

 

Cheapest 2-year variable-rate buy-to-let mortgages

Provider Initial interest rate Monthly payment Upfront fees SVR
Leek United Building Society 2.10% £328 £105 5.19%
The Nottingham 2.10% £328 £124 6.54%
Principality Building Society 2.15% £335 £73 4.40%

 

Best buy-to-let remortgage deals

Based on a property valued at £250,000, with a mortgage at 75% LTV and a mortgage term of 25 years. It is based on an interest-only mortgage with the fees paid upfront.

Cheapest 2-year fixed-rate buy-to-let mortgages

Provider Initial interest rate Monthly payment Upfront fees SVR
Santander 1.55% £242 £1,759 3.35%
BM Solutions 1.87% £292 £995 4.44%
Platform 1.65% £257 £2,049 5.00%

 

Cheapest 5-year fixed-rate buy-to-let mortgages

Provider Initial interest rate Monthly payment Upfront fees SVR
Santander 2.00% £312 £1,759 3.35%
BM Solutions 2.10% £328 £995 4.44%
NatWest 2.09% £326 £1,025 4.09%

 

Cheapest 2-year variable-rate buy-to-let mortgages

Provider Initial interest rate Monthly payment Upfront fees SVR
Leek United Building Society 2.10% £328 £105 5.19%
The Nottingham 2.10% £328 £124 6.54%
Principality Building Society 2.15% £335 £73 4.40%

 

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