Quick summary For more information, see stamp duty land tax guidance.
- Most lenders require a minimum 25% deposit for a buy-to-let mortgage
- Rental income must cover 125% to 145% of the mortgage interest at a stressed rate of 5.5%
- Section 24 removes mortgage interest relief for higher-rate individual landlords; limited companies are not affected
- SDLT on additional residential properties increased to an extra 5% surcharge from October 2024
Buy-to-let investment remains one of the most popular routes to property wealth in the UK, though the landscape has changed substantially in the past decade. Tax reforms, tighter lending criteria and higher interest rates have all made the numbers harder to stack up compared with ten years ago. That does not mean it is no longer viable — far from it — but it does mean that understanding the full picture before you invest is more important than ever.
This guide covers the mortgage side of buy-to-let in detail: how affordability is assessed, what deposit you need, the difference between personal name and limited company ownership, and what to watch out for when remortgaging an existing portfolio.
How buy-to-let mortgage affordability is assessed
Unlike residential mortgages, where affordability is primarily based on your personal income, buy-to-let lending is assessed primarily on the rental income the property can generate. Lenders apply what is called an Interest Coverage Ratio (ICR) test: the monthly rent must cover the mortgage interest at a stressed rate by a set multiple.
| Borrower type | Minimum ICR | Stress test rate |
|---|---|---|
| Basic rate taxpayer (personal name) | 125% | 5.5% or product rate plus 2%, whichever is higher |
| Higher or additional rate taxpayer (personal name) | 145% | 5.5% or product rate plus 2%, whichever is higher |
| Limited company (SPV) | 125% | 5.5% or product rate plus 2%, whichever is higher |
| Portfolio landlord (4 or more mortgaged properties) | 125% to 145% | 5.5% to 6.5% |
ICR calculation: does this property pass?
A property rents for £1,100 per month (£13,200 per year). The proposed mortgage is £160,000. At a 5.5% stress rate, annual interest = £8,800. ICR = £13,200 / £8,800 = 150%. This passes the 125% test for basic rate taxpayers and the 145% test for higher rate taxpayers. At a 25% deposit (LTV 75%), most mainstream buy-to-let lenders would consider this application.
Deposit requirements
The minimum deposit for a standard buy-to-let mortgage in 2026 is typically 25%, giving a maximum LTV of 75%. Some specialist lenders offer 80% LTV products, but these come with higher rates and stricter criteria. For HMOs (houses in multiple occupation), holiday lets and multi-unit freehold blocks, most lenders require 30% or more.
Personal name vs limited company: which is right for you?
One of the most consequential decisions for any landlord in 2026 is whether to own property in personal name or through a limited company (usually a Special Purpose Vehicle, or SPV). The answer depends on your tax position, the number of properties you own, your long-term plans and your personal income.
| Factor | Personal name | Limited company (SPV) |
|---|---|---|
| Mortgage interest relief | 20% tax credit only (Section 24) | Full deduction as a business expense |
| Rental income tax | At your marginal income tax rate (20%, 40% or 45%) | Corporation tax on profits (25% in 2026) |
| ICR threshold | 125% or 145% depending on tax band | 125% for most lenders |
| Mortgage rates | Marginally lower in most cases | Slightly higher, fewer lenders, but gap has narrowed |
| Setup and running costs | None | Incorporation costs, annual accounts, potential salary structure |
| Inheritance and estate planning | Properties form part of taxable estate | Shares in a company can be more flexible for estate planning |
Tax advice is essential
The choice between personal and limited company ownership has significant tax implications that vary considerably depending on your income, plans and existing portfolio. The Mortgage Story is not authorised to provide tax advice. Please consult a qualified accountant or tax adviser before making this decision.
Section 24 and its impact on higher rate landlords
Section 24 of the Finance Act 2015, now fully implemented, fundamentally changed the tax position of individual landlords. Under the old rules, mortgage interest was deducted from rental income before tax was calculated. Under Section 24, individual landlords receive only a 20% basic rate tax credit on mortgage interest, regardless of their marginal tax rate.
For basic rate taxpayers, this change has no net effect. For higher rate taxpayers, the impact is substantial. A higher rate landlord who previously paid 40% tax on rental profits after deducting mortgage interest now pays tax on a higher profit figure, with only a 20% credit to offset it. This can double the effective tax rate on rental income.
Limited companies are not subject to Section 24. Mortgage interest is a fully deductible business expense against rental income before corporation tax is applied. This is the primary reason many higher-rate landlords have been incorporating their portfolios.
Stamp Duty Land Tax on buy-to-let purchases
Since October 2024, anyone buying an additional residential property pays a stamp duty surcharge of 5% on top of the standard rates. This applies to all buy-to-let purchases, second homes and holiday lets. On a £250,000 property, the SDLT is £10,000 for an additional dwelling, compared with £2,500 for a first-time buyer or £5,000 for a home mover purchasing within the standard bands.
For purchases through a limited company, the same surcharge applies. Planning a purchase with full knowledge of the SDLT cost is important for return calculations.
The rental yield calculation
Before taking on any buy-to-let mortgage, calculate the gross and net yield on the property to understand whether the numbers work at current financing costs.
Yield calculation example
A property purchased for £220,000 rents for £1,050 per month. Gross yield: £12,600 / £220,000 = 5.7%. Net yield after mortgage interest (£160,000 at 5.0% = £8,000), insurance (£400), agent fees (£1,500), maintenance allowance (£1,000): net income = £1,700 per year. Net yield: 0.77%. This illustrates how much financing costs affect returns. Stress testing the numbers against a higher rate scenario before committing is essential.
Remortgaging a buy-to-let property
Many landlords who fixed at low rates in 2020 to 2022 are now facing significantly higher costs at renewal. The process of remortgaging a buy-to-let is broadly similar to a residential remortgage, but the ICR test applies afresh at the new rate. Properties that easily passed the ICR at 2% may struggle at current stress test rates if the rent has not risen in line.
Options if your property does not pass the ICR at your required loan amount include reducing the loan balance to improve the ratio, switching to a five-year fix (some lenders apply a lower stress rate to five-year products), or accepting a lower LTV by injecting capital.
Frequently asked questions
Can I live in my buy-to-let property?
No. Living in a property mortgaged on a buy-to-let basis constitutes mortgage fraud. If your plans change and you want to move into the property, you must notify your lender and switch to a residential mortgage. Your lender may or may not agree to this, depending on your personal circumstances.
Can I get a buy-to-let mortgage if I do not own a residential property?
Some lenders will consider buy-to-let applications from non-homeowners, but the criteria are stricter. You typically need a larger deposit, a higher income and a clean credit history. Many mainstream buy-to-let lenders require you to own your own home.
What is a portfolio landlord and does it affect my mortgage?
The Prudential Regulation Authority defines a portfolio landlord as someone with four or more mortgaged buy-to-let properties. Lenders must assess the entire portfolio’s stress test performance when any single portfolio landlord applies for a new mortgage. This means you need to provide details of all existing mortgaged properties, and all must pass their respective ICR tests, not just the new one.
Are holiday let mortgages the same as buy-to-let?
No. Holiday let mortgages are assessed differently, typically on projected gross income during peak and off-peak periods. They are treated as a commercial lending product by most lenders, with different tax treatment, different rental income calculations and different rates. Holiday lets can qualify for Furnished Holiday Lettings (FHL) tax status in some circumstances, which has its own set of rules.
Speak to an adviser
Have a question about your situation? Leave your details below and we will be in touch — no obligation, no credit check.