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How does buy to let work?
Buy to let mortgage - how do they work?
Lenders base rental property mortgages on rental income. In most cases, the rental income will be 125% of the loan. The Ratio is known as the Interest Coverage Ratio (ICR) and it assesses whether you will have the income to cover mortgage payments, as well as letting agent fees the running and the insurance cost of the property.
Before applying for a buy to let mortgage, you also need to take valuation and other costs into account.
Buy to let mortgage advice & tools
Find out how much you could borrow
Take a look at our mortgages
The home buying process
Once you've found out how much you could borrow for your buy to let mortgage, you can use our guide to navigate the rest of the home buying process.
When you have your rental property, remember to keep on top of your legal obligations as a landlord and find out what taxes you'll need to pay.
Landlord's Checklist
It’s not just a case of finding a rental property. You also need to uphold your legal obligations as a landlord, and make sure you pay all the taxes that come with that title.
Find out about the responsibilities that come with letting a property:
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1
Gas Safety and Energy Performance Certificate
You must be able to provide your tenants with up to date certificates and have all gas appliances serviced regularly, usually once a year.
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2
Make sure the property is insured
For any mortgage you must have buildings insurance. It can pay to shop around to find the right policy for you.
You can also choose to take out landlord insurance, but it's not compulsory.
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3
Managing the property
It’s up to you whether you decide to manage the property yourself or use an agency. But tenants’ deposits are subject to the compulsory Tenancy Deposit Protection scheme.
This scheme ensures that third-parties look after deposits and can help in resolving disputes and problems between you and your tenants.
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4
Budgeting for any maintenance and redecoration
Make sure you take into account any work you'll need to do before you rent the property out, from a lick of paint to updating the kitchen.
Remember that you could get hit by unexpected costs such as a broken washing machine.
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5
Keeping up with tax payments
Your rental income (after deducting day-to-day running expenses) needs to be included in your total income for Income Tax.
If you decide to sell the property, any profits over a certain threshold mean you’ll have to pay Capital Gain Tax. You can get more information on gov.uk
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6
When your property is empty
Your property could be empty in between tenants, so you'll need to make sure you can still pay your mortgage during this time.
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7
Understanding the risks of being a landlord
Being aware of any potential risks of renting in the private sector can help in giving you and your tenants more security.
There is information available to help you understand your rights and responsibilities, and the Residential Landlords' Association has published various guides and documents. These guides cover things like setting up a tenancy, data protection, tax, benefits and payments.