Buy-to-Let Mortgage Calculator

Buy-to-let mortgages differ from residential mortgages in several ways. Most are interest-only, meaning monthly payments cover only the interest and the full capital balance is due at the end. Lenders typically require a rental coverage ratio of 125-145%, meaning the rental income must exceed the mortgage payment by that margin at a stress-tested interest rate rather than at the rate you actually pay.

Minimum deposits for buy-to-let are usually 25% of the property value, giving a maximum LTV of 75%. Some lenders offer up to 80% LTV at higher rates, and deposits of 25-40% are common among landlords chasing sharper pricing, well short of the 95% available on a residential purchase. Interest rates are typically 0.5-1.5% higher than equivalent residential rates. Affordability is assessed primarily on rental income rather than personal income, though most lenders also require a minimum personal income of £25,000.

Both interest-only and repayment structures are modelled here. Enter the property price, deposit, rental income, interest rate, how long the rate is fixed and who is borrowing to see the monthly payment and the rental cover at the stressed rate. The result flags whether the rent meets 125% or 145% cover and shows the rent needed to pass and the largest loan the rent supports. The gap between cover at the pay rate and cover at the stress rate is where applications usually fail, because rent that comfortably covers the payment at the pay rate can fall short once the stress rate is applied.

Stress testing is a regulatory requirement rather than lender caution. Since 2017 the Prudential Regulation Authority has required buy-to-let lenders to test rental cover at 5.5%, or at 2 percentage points above the pay rate where that is higher. A rate fixed for 5 years or more can be tested at the pay rate instead, which is why many landlords choose five-year fixes. Most lenders test higher-rate taxpayers at 145% rental cover, basic-rate taxpayers at 125%, and limited companies usually at 125%. Top-slicing, where personal income makes up a rental shortfall, is increasingly common. Landlords with 4+ mortgaged properties count as portfolio landlords and face additional portfolio underwriting across everything they own.

Tax is where buy-to-let sums are won or lost. Stamp Duty Land Tax on an additional property runs at the standard rates plus a 5% surcharge, raised from 3% in October 2024, and lands as cash on completion. Held personally, rental profit is taxed at income tax rates of 20-45%, but mortgage interest attracts only 20% relief following Section 24, which was phased in between 2017-2020. From 6 April 2027 property income in England, Wales and Northern Ireland is taxed at its own rates of 22%, 42% and 47%, with finance-cost relief at 22%. For a higher-rate taxpayer with a large loan, that treatment can leave very little of the paper profit intact.

A limited company, usually a special purpose vehicle, is taxed on a different basis. Corporation Tax of 19-25% applies to profit worked out after the full mortgage interest deduction, which for higher-rate taxpayer landlords with sizeable borrowing typically saves £2,000-£5,000 a year per property. Against that sit the running costs, roughly £100-£300 to incorporate and £800-£1,500 a year in accounting, so the structure tends to earn its keep on portfolios of 3+ properties or on purchases with high LTV rather than on a single lightly geared flat.

Yield is the other half of the picture. Gross yield is annual rent divided by property value and multiplied by 100, and national averages run from 4-5% in London and 5-6% in the South East up to 6-8% around Manchester and Birmingham and 8-10% or more across the North East and North West. Net yield, after costs, voids and management, is usually 60-70% of gross. A net yield above 5% alongside realistic capital growth of 3-5% a year points to a total return near 8%. Borrowing at 75% LTV multiplies both gains and losses on your equity by 4 times.