Minimising your deposit on buy to let purchases allows you to maximise your leverage and expand your property portfolio quicker. While a lower deposit, and therefor lower equity will mean a slightly higher interest rate, the increased borrowing can be invaluable.
You are unlikely to secure an 80% buy to let mortgage by visiting a high street bank or some of the other, more cautious buy to let mortgage lenders. These are specialist products, only available through specific lenders, and typically held back for the strongest applications.
It remains possible to secure a deal with this loan-to-value ratio, though, especially if you seek professional assistance from an experienced buy to let mortgage broker.
What is an 80% LTV buy to let mortgage?
Any property purchase will require a deposit before you will be granted a mortgage. Once removed from the property purchase price, this deposit will impact your loan-to-value ratio.
Let’s imagine you are applying for a mortgage on a property priced at £200,000, and you have £40,000 available in liquid cash to lay down as a deposit. That is 20% of the total value, so the loan-to-value ratio of this mortgage would be 80%. That would be acceptable on a residential mortgage in many cases.
Buy to let (BTL) mortgages invariably command a higher deposit and a lower loan-to-value ratio. The criteria set by lenders will vary, but most mortgage providers will not go above 75% loan-to-value on a buy to let property. Some will even cap their lending at 60%, especially if you are a first-time buyer, who is looking for a first time buyer buy to let mortgage.
An 80% BTL mortgage is a specialist product that allows you to secure a buy to let property with a comparatively low deposit of 20%. Such a deal is highly sought after but can be difficult to acquire – especially without professional help from a mortgage broker or independent financial adviser.
Who can get an 80% BTL mortgage?
On paper, anybody can get an 80% BTL mortgage, but this certainly does not mean everybody will. As discussed, this is a rare and specialist product on the open market, and very few lenders will make it clear that they will consider this lending. Some lenders will outright refuse to consider BTL mortgage lending at a loan-to-value ratio below 75%.
Keep reading – Buy to let remortgage
Will I qualify for a high loan-to-value buy to let mortgage?
You will stand a much better chance of gaining access to an 80% BTL mortgage if the following applies to your request for funding.
- You have experience in successfully purchasing and managing buy to let properties in the past.
- Your rental income, based on facts and market rates in the area, will clear the mortgage repayments by some margin.
- You can demonstrate comfortable affordability in meeting the monthly repayments, even if your tenants cannot or will not pay their rent on time.
- If things go awry, you have the financial standing needed to fix the issue.
- You have a good credit history.
Ultimately, all mortgage lenders base their decisions on risk vs reward. If you want to qualify for a high loan-to-value ratio, you must convince your mortgage provider that investing in you is not a high-risk strategy and that you can keep up with repayments.
What is the criteria for an 80% BTL mortgage?
Affordability is the core criteria for any BTL mortgage, especially one with a high loan-to-value ratio. While some fundamental rules will apply – you will need to be older than 18 to qualify for any kind of mortgage and typically younger than 80 or 85 before the end of the proposed repayment term – affordability based on rental income will be the most significant deciding factor.
The sum requested on a mortgage deposit is typically calculated according to the risk posed by lending this money. For example, if you have a chequered credit history but still manage to secure a residential mortgage, you may be asked to pay a higher deposit. This offers a measure of protection to the lender, as the more of the asset is initially paid off, the more they will likely recoup if the worst happens and you default on repayments.
While credit history still plays some role in decision-making surrounding buy to let mortgages, most lenders are more concerned with affordability. This is the primary risk assessment on mortgages of this type. Essentially, you must prove to the mortgage provider that your projected rental yield will more than cover the monthly loan repayments. Consequently, you’ll need an strong rental yield to secure an 80% BTL mortgage.
Most lenders will only consider a buy to let mortgage if your rental income is at least 125% of the monthly mortgage payment. So, if you are repaying £1,000 per month, you’ll need to bring in £1,250 through rent to pass affordability checks.
What interest rate will I pay on an 80% LTV mortgage?
This number will change regularly, especially in periods of economic flux like we are currently experiencing. The interest rate you are charged could be between 4% and 9%, depending on a range of factors. These include:
- The Bank of England base rate, which dictates interest rates on all mortgages.
- The type of property that you are purchasing a managing. An HMO will typically attract higher interest than a single-family residence.
- Your experience in managing buy to let property. Most lenders will charge a higher interest rate to first-time buyers, as these borrowers are considered higher risk.
- The potential rental income the property will bring in. A rental yield considerably higher than the monthly mortgage repayments may lead to a preferential interest rate, as the risk to the lender is considered lower.
- Your personal or professional financial history. While buy to let mortgage applications are judged more on affordability than credit score, adverse credit will always raise eyebrows – and, potentially, interest rates – in a lender when assessing risk.
How can I get the best deal on my BTL mortgage?
Follow these steps if you want to secure the best possible deal on a buy to let mortgage.
- Build a compelling business plan that shows potential for a steady income and future growth, and explains how you will continue to pay the mortgage if your tenants withhold rent or move out at short notice.
- Arrange a prospective tenancy before applying for the mortgage, showing your lender that you will not struggle to attract aspiring renters and will be able to start producing rental income immediately.
- Ensure your other finances are in order, minimising unsecured debt where possible and correcting any errors on your credit file. Lenders will feel more comfortable if you can demonstrate financial stability outside of rental yield.
- Improve the energy efficiency of a property before bringing in tenants. At the time of writing, landlords can let out any property with an Energy Performance Certificate (EPC) ranking of D or higher. In 2025, the minimum threshold will rise to C. With this in mind, some lenders are offering so-called “green mortgages” with preferential terms on properties with an EPC ranking of A or B.
Above all, it’s highly advisable to team with a reputable broker when applying for a buy to let mortgage.
Professional brokers will have access to a wide array of specialist products that may be otherwise out of reach, ensuring that you may secure a considerably lower interest rate and deposit requirement.
Does the rental income affect how much deposit I need to pay?
As we have discussed, the only way to secure an 80% loan-to-value ratio on a BTL mortgage is to produce an impressive rental income. This means that rental yield will play a significant role in the deposit demanded by a lender, and you will need to provide some kind of evidence that your calculations are realistic.
Claiming that you anticipate a rental income of £1,200 when most property of equal size and condition in the same area charges closer to £800 is unlikely to see your application approved. A chartered surveyor will need to confirm your anticipated rental income when completing a valuation report to support your application.
Taking a product with a longer term fixed rate of 5 years or more may relax your chosen lenders affordability rules. By taking out a fixed rate buy to let mortgage, the fact that your monthly costs are predictable for a longer period of time will reduce the required rental coverage as part of the affordability assessment.