What is a Buy to Let mortgage?

A buy to let mortgage is a special type of mortgage that’s required if you’re buying a property to rent out (or remortgaging to rent out). The criteria is completely different for a buy to let mortgage and a mortgage to buy a home. The lender largely bases the loan amount on the rental income the property is likely to achieve. A buy to let mortgage typically requires more deposit (minimum of 20%) and the mortgage rates and arrangement fees are usually higher than a residential mortgage.

Why consider a buy to let mortgage?

Property is a great investment and a good place to put your money. It’s a profitable arena for investors and some have managed to amass great wealth through investing in property.

Having said that, a buy to let mortgage is a big commitment and you need to get the best mortgage advice. There can be many complications that you can’t predict from additional tax implications to difficult tenants, so you need to take all this into consideration before you proceed with your buy to let mortgage.

If I want to let out the property I live in, do I need to have a buy to let mortgage?


If you are considering renting out the property you live in you must have a buy to let mortgage. If you have an existing residential mortgage and you are tied in with your current lender, they might give you an “authority to let/consent to let” for a set period of time. This will come at an extra cost and it’s not guaranteed that the lender will allow you to do this so you will need to speak with them first and ask for permission. This may not always be the best option for you so it’s important that you get advice.

Should I use a LTD company to purchase a buy to let property?

LTD company buy to let mortgages are becoming more popular due to the changes in taxation. Before you decide on whether you should buy in a LTD company you need to explore both options for your mortgage. Purchasing in a LTD company could be more tax efficient but there will typically be higher fees and a higher interest rate. There are many different things you need to consider before you make this important decision.

The good news is, we will do all this for you free of charge and provide you with all the different mortgage options so that you can choose the mortgage best for you in an informed way.  We would then recommend speaking to an accountant or a tax specialist before you decide how you want to go ahead with your mortgage.

What are the tax implications for a buy to let mortgage?

There are many different tax implications to consider when purchasing a buy to let, you should get specialist advice with this before you progress.

We’ll explore some of the facts here but you should seek independent tax advice in relation to your buy to let mortgage as well. We work alongside partners who’ll be able to help you with this and put you in a more informed position.

There are three main areas of tax you pay with a buy to let mortgage:

  1. When you buy the property
  2. On the annual profit you make
  3. On the capital gain when you sell it

Let’s explore these areas in a little more detail…

"We used Jack to buy our first house and he explained everything to us so we really understood everything properly. He had numbers for all the lenders and were able to get our mortgage approved nice and quick. We couldn’t recommend Jack's service highly enough."

Adam & Becky, Colchester

Income tax

(on the annual profit you make)

You will pay income tax on a buy to let property but there are various items that you can get tax relief on (these are known as allowable expenses). We have provided some examples below to give you an idea of what you can get relief on.

  • Mortgage interest
  • Mortgage fees
  • Lettings fees
  • Council tax
  • Ground rent / service charge
  • Insurances
  • Small repairs
  • Maintenance

There have been some significant changes made which were announced in the Summer budget 2015 which started taking effect from April 2017. Previously, regardless of your tax bracket you could get tax relief at the rate at which you pay tax. Because of the changes, regardless of your tax brackets, tax payers will only be able to get tax relief at the basic rate of tax (therefore basic rate tax payers will not be affected by the change).

The change in tax is being phased over a 4 year period and will take effect in 25% tranches. We have provided an example below on how this might affect a 40% tax payer based on received £25,000 of rent income and £16,300 of mortgage interest per annum.

Capital gains

(when you sell the property)

When you sell a property for more money than you purchased it for you are required to pay tax on the increased value of the property (this is known as a capital gain). How much will depend on the amount of the capital gain and what tax bracket you’re in.

Again, this is something worth getting advice on as everyone’s circumstances are different. The capital gain must be above a certain amount which changes periodically and is set by the government. You can also offset certain costs against the gain you’ve made e.g. if you’ve done work to the property, fixed the roof, extended, etc.