A well-chosen buy-to-let property can generate rental income, build equity over time, and form part of a long-term financial strategy. But the first investment property is also where the most expensive mistakes get made.
This guide is for people who are thinking about their first buy-to-let but want to understand how it actually works before they commit. There is a lot of information out there on this subject, some of it overly optimistic. What follows is a straightforward account of what buy-to-let involves, what you need to qualify for the mortgage, and what costs and risks to factor in.
What buy-to-let actually means
A buy-to-let property is one that you purchase specifically to rent out, rather than to live in yourself. You are the landlord. A tenant lives in the property and pays you rent. You are responsible for the property and for meeting your legal obligations as a landlord.
A buy-to-let mortgage is a specific product designed for this purpose. It is not the same as a residential mortgage and you cannot use a residential mortgage to buy a property you intend to rent out. The two products have different criteria, different rates, and different regulatory frameworks.
How lenders assess a buy-to-let mortgage application
The primary thing a buy-to-let lender looks at is whether the rental income from the property will cover the mortgage payments by a sufficient margin. This is measured by the Interest Coverage Ratio, often referred to as the ICR.
Most lenders require the rental income to cover the mortgage payment by 125% to 145% of the monthly interest cost, calculated at a stressed interest rate higher than the actual product rate. This means that if your mortgage interest payment is £500 per month, you typically need a rental income of £625 to £725 per month to satisfy the lender's criteria.
Your personal income matters too, particularly for smaller deposits and with some lenders. Most buy-to-let lenders have a minimum personal income requirement, typically around £25,000 per year, though this varies.
Deposit requirements
Buy-to-let mortgages typically require a larger deposit than residential mortgages. Most lenders require a minimum of 25% of the purchase price as a deposit. Some will consider 20% in limited circumstances, but 25% is the practical starting point for most applicants.
A larger deposit reduces the loan to value and opens up more lenders and better rates. For a first investment, having at least 25% available gives you access to the mainstream specialist buy-to-let market.
Tax considerations: what you need to know before you buy
Stamp Duty Land Tax applies to buy-to-let purchases and includes a surcharge on top of the standard rates for purchases of additional residential properties. The rate you pay depends on the purchase price and the current government thresholds. Rates are subject to change, and the figures you see quoted may not reflect the current position, so it is important to verify with HMRC or a qualified solicitor before proceeding.
Rental income is subject to income tax. As a landlord, you declare your rental income and can deduct allowable expenses including mortgage interest, though the rules around mortgage interest relief changed significantly for individual landlords with the introduction of Section 24. This is one of the reasons many landlords choose to buy through a limited company. Again, this is a conversation for your accountant.
Capital Gains Tax may apply when you sell a buy-to-let property if the value has increased since you purchased it. The rules and rates are complex and have changed over recent years.
Running costs landlords underestimate
Buy-to-let is sometimes presented as passive income. In reality, it involves ongoing costs and responsibilities that need to be factored into any financial assessment.
Void periods, when the property is empty between tenants, mean that rental income is not guaranteed every month of the year. Budgeting for one to two months of void per year is a sensible conservative assumption for most properties.
Maintenance and repairs are an ongoing cost. As a landlord, you are responsible for keeping the property in good repair. A boiler replacement, roof repair or structural issue can be significant.
If you use a letting agent to manage the property, their fees typically range from 8% to 15% of the monthly rent. This is a real cost that affects your net yield.
Landlord insurance, including buildings insurance and contents insurance for any furnished elements, is an ongoing cost. Some lenders require this as a condition of the mortgage.
Is buy-to-let the right investment for you?
Buy-to-let is not the right investment for everyone, and the market looks different now than it did ten or fifteen years ago. Higher stamp duty costs, reduced mortgage interest relief for individual landlords, and an increasingly regulated tenancy environment mean that the numbers need to be worked through carefully before committing.
That said, for the right investor with the right property in the right location, buy-to-let remains a compelling option. The key is going into it with a realistic picture of the costs, the risks, and the returns.
Getting proper advice before you buy, rather than after, makes an enormous difference to the outcome.
Frequently asked questions
Can I get a buy-to-let mortgage if I do not own my own home?
Some lenders will consider buy-to-let applications from people who do not own a residential property, but many require the applicant to already be a homeowner. The options are more limited, but it is not impossible. A specialist broker can identify which lenders will consider your situation.
How much deposit do I need?
Most lenders require a minimum deposit of 25% of the purchase price. Some will consider 20% in limited circumstances. A 25% deposit gives you access to the mainstream specialist buy-to-let market.
Can I live in a buy-to-let property?
No. A buy-to-let mortgage is specifically for properties that are rented out. If you want to live in the property, you need a residential mortgage. Occupying a property with a buy-to-let mortgage is a breach of the mortgage conditions.
What is rental yield and what is a good one?
Rental yield is the annual rental income expressed as a percentage of the property's value. A gross yield of 5% to 7% is commonly cited as a reasonable target, though this varies significantly by location, property type, and market conditions. Net yield, which accounts for costs and voids, will always be lower than gross yield.
Do I need a letting agent?
You are not legally required to use a letting agent. Many landlords manage their properties directly. A letting agent reduces your involvement but comes at a cost. The right choice depends on how much time you want to invest in managing the property and your familiarity with landlord legislation.
Last updated: 10 May 2026