Buy-to-Let Mortgages Explained: What Landlords Need to Know

As the buy-to-let market continues to be a pillar of the UK property sector, it continues to attract both seasoned and first-time landlords. As the market develops, so does the need for mortgage product innovation and the landscape for buy-to-let mortgages in the UK is evolving rapidly. It’s being shaped by shifting lender criteria, legislative changes, and broader economic trends including volatile interest rates and rental demand.

For landlords looking to invest or remortgage their buy-to-let properties, understanding these impacting factors is crucial to making informed decisions to maximise returns.

What Are Buy to Let Mortgages?

Buy to let mortgages are type of property finance loan specifically designed for individuals who want to purchase property for investment purposes to rent rather than live in themselves. Unlike standard residential mortgages, buy to let mortgages often require a larger deposit, have different affordability and eligibility assessments, and are subject to more stringent lending criteria when compared to standard residential mortgages. When the market fluxes, it’s important for landlords to stay abreast of the latest mortgage requirements, legislation and regulatory changes.

Key Criteria for Buy to Let Mortgages

1. Deposit Requirements

One of the primary considerations for landlords securing a buy-to-let mortgage is the deposit. Currently, most lenders offering these types of mortgage products require a minimum of 20-25% deposit. However, for more competitive interest rates, a deposit of 30-40% may help you achieve this. This is because the larger the deposit, the lower the perceived risk for the lender.

2. Rental Income Assessment

Unlikely standard residential mortgages, lenders assess buy-to-let mortgage affordability differently. Instead of focusing solely on an applicant’s personal income, lenders consider the potential rental income – or yield – that could be generated by the property, to indicate potential profit.

As a general rule, an investor’s rental income must cover 125-145% of the mortgage repayments, calculated at a notional interest rate. This is estimated higher than the actual rate to allow for interest rate rises over time. Due to the increased risk that is associated with buy-to-let’s (namely that income is reliant on renters), stress testing remains robust as lenders factor in substantial increases to ensure borrowers can withstand future rate hikes.

3. Landlord Criteria

As part of the application process for buy-to-let mortgages, many lenders require clients to already own a residential property (either outright or with a mortgage). In addition, some products may also have minimum income requirements of around £25,000 per year, to ensure landlords can cover unexpected costs or periods of vacancy.

With stricter criteria in place from many lenders, it’s no wonder first-time landlords face stringent stress-testing and higher rates. In contrast, experienced landlords with an established rental portfolio may benefit from more flexible terms.

Recent UK Legislative Updates Impacting Buy to Let

The regulatory environment for buy to let mortgages UK-wide has seen significant changes in recent years. Here are the most impactful updates landlords need to be aware of:

Energy Performance Certificate (EPC) Regulations

The UK government has committed to improving energy efficiency in rental properties over the coming years. From 2028, all newly rented properties must have an EPC rating of at least ‘C’, with existing tenancies expected to comply by 2028.

Ahead of these regulatory changes, developer and investors should allow budget for potential upgrades, as non-compliant properties can result in fines and difficulty securing new tenants.

Section 21 ‘No Fault’ Evictions

Section 21 is a legal eviction notice that allows landlords in England to end an assured shorthold tenancy (AST) without providing a reason. In late 2025, this legislation is set to be abolished.

Although this increases tenant protections, it also places greater emphasis on thorough tenant referencing and robust tenancy agreements ahead of rental occupation.

Taxation Changes

Mortgage interest tax relief has already been phased out, and landlords are now taxed on rental income rather than profit after mortgage interest. This year, the UK has also received further changes  to capital gains tax and stamp duty, under the current government.

TOP TIP: For landlords exploring BTL properties, ensure you stay informed about the latest legislative changes as they are vital for accurate financial planning.

Pros and Cons of the Current Buy to Let Market in the UK

Pros

• Strong rental demand: With pressure on the UK housing market and continued affordability issues for many first-time buyers, rental demand remains high in the UK, particularly in urban centres and commuter towns.
• Potential for capital growth: Despite market fluctuations, UK property has historically delivered long-term capital appreciation.
• Diverse mortgage products: As client demands change, so does product innovation. Lenders now offer a broader range of buy to let mortgages UK-wide, including options for limited companies and green mortgages for energy-efficient properties.
• Portfolio growth opportunities: For experienced landlords looking to leverage existing equity to expand their portfolios, some products have preferential rates that appeal to investors.

Cons

• Tighter lending criteria: When compared to standard residential mortgages, lenders are more cautious and have rigorous stress testing combined with stricter affordability assessments. This is especially relevant for first-time landlords or those with smaller deposits.
• Increased regulation: Stricter EPC requirements and the end of Section 21 evictions both add complexity and potential costs to your buy-to-let investment.
• Taxation pressures: Reduced tax relief, potential increases in capital gains, and changes to stamp duty make it essential to factor in all costs to accurately plan finances.
• Interest rate uncertainty: Although rates have stabilised somewhat, the economic outlook remains uncertain and if rates were to increase again, this could impact profitability.

What Should Landlords Do Next?

Navigating buy to let mortgages requires careful planning and ongoing education. Here are some practical steps for landlords to take:

• Review portfolio compliance: It’s important to ensure all buy-to-let properties meet the latest EPC criteria and safety standards. Failure to do so could result in hefty fines.
• Reassess financials: When assessing potential costs try to factor in everything, including potential tax liabilities and compliance expenses.
• Stay informed: Take time to stay up to date with legislative updates and market trends to anticipate changes and adapt investment strategies as required.
• Seek professional advice: For deep knowledge and current product understanding, speak to specialist mortgage brokers and advisers who understand the nuances of buy to let mortgages in the UK.

The buy to let market in the UK remains a viable investment route for many property developers and investors, but it’s not without its challenges.

By understanding the evolving criteria for buy to let mortgages, keeping abreast of legislative updates, and navigating the pros and cons, landlords are armed with the information to make well-informed decisions to grow their investments into profit.

As with any investment, a proactive approach and expert advice are key to success in this dynamic sector. The expert team at Exe Mortgages is on hand to answer any questions you may have. For more information, speak to our BTL mortgage team today.