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Buying a buy to let property means purchasing a home to rent out to tenants, rather than living in it yourself. It usually needs a bigger deposit than buying your own home, plus a different type of mortgage. Most lenders ask for a minimum deposit of 25% of the purchase price. They also base how much you can borrow on the rent the property is expected to earn, not just your personal income.
This guide walks through how buy to let purchases work. It covers the deposit and mortgage, working out rental yield, the tax rules you need to plan for, how to finance the purchase, what changes once you own several properties, and common mistakes to avoid.
What is a buy to let property?
A buy to let property is a home bought specifically to let out to tenants. You fund it with a buy to let mortgage, not a standard residential one. The property cannot be your main home while the mortgage is in place. Lenders assess the loan against the rental income it's expected to bring in, not just your salary. You can buy a buy to let property as an individual, jointly with someone else, or through a limited company. Each route has different tax and mortgage implications, covered later in this guide.
How much deposit do you need to buy a buy to let property?
You'll typically need a deposit of at least 25% of the property's value. That caps most mortgages at 75% loan to value. Some lenders will lend up to 80% or 85% loan to value, but these deals are harder to secure unless you already have an established property portfolio. They also tend to come with higher interest rates. A bigger deposit doesn't just reduce your loan size. It usually gets you a lower interest rate too, since buy to let lenders price their deals in loan to value bands. Moving from 75% to 60% loan to value, for example, can noticeably cut your monthly repayments.
How do lenders decide how much you can borrow?
Lenders decide how much you can borrow mainly by looking at the property's expected rental income. This is known as a rental cover or stress test calculation. Most lenders require the monthly rent to cover somewhere between 125% and 145% of the mortgage repayment. This is calculated at a notional stress rate, not your actual interest rate, so the property still covers the mortgage even if rates rise. Many lenders also expect you to have a personal income on top of the rental income, sometimes around £25,000 a year or more. This can come from employment or self employment. The requirement varies by lender, and some will lend without it if the rental cover is strong enough. Your credit history and existing borrowing get assessed too, so lenders can see you're not already stretched.
How do you work out rental yield?
Rental yield tells you how much a property earns each year compared to what it cost, and it's the quickest way to judge whether a purchase stacks up before you go any further. To work out the gross yield, divide the annual rent by the property's purchase price, then multiply by 100. A property costing £200,000 and renting for £1,000 a month, or £12,000 a year, has a gross yield of 6%.
Gross yield is useful for comparing properties quickly, but it ignores your costs. Net yield gives you a truer picture, since it takes your mortgage payments, insurance, maintenance, letting agent fees and any void periods off the rent first, before dividing by the property price. Working out both figures for any property you're considering helps you compare it fairly against others, and against what you could earn elsewhere with the same deposit.
Should you buy through a limited company or in your own name?
This depends mainly on how the tax treatment suits you, and there's no single right answer for every landlord. If you buy personally, rental profits are taxed as income at your personal rate. Mortgage interest only qualifies for a 20% tax credit, not a full deduction, under the finance cost rules HMRC applies to individual landlords. If you buy through a limited company, the company pays corporation tax on profits instead. Mortgage interest is treated as a normal business expense and deducted in full before tax. You'll pay tax again if you draw the profits out as dividends though.
Company purchases usually mean fewer lenders to choose from, and sometimes higher rates and fees than personal buy to let mortgages. Taking money out of the company also adds a layer of dividend tax. This is worth getting proper tax advice on before you buy, since it's expensive to change your mind once the property is owned.
Can you get a buy to let mortgage as a first time buyer?
A first time buyer can get a buy to let mortgage, but fewer lenders offer this and the terms are usually stricter. Lenders that accept first time landlords tend to ask for a bigger deposit, a stronger personal income, and a higher rental cover than they would from someone who already owns their own home. Some lenders won't consider first time buyers at all, so it's worth checking this with a lender or a funding specialist early, rather than after you've found a property.
What tax do you pay when buying and owning a buy to let property?
You pay stamp duty land tax when you buy the property. Then you pay income tax or corporation tax on the rent while you own it, plus capital gains tax if you sell for a profit. Buy to let purchases in England and Northern Ireland attract a 5% stamp duty surcharge on top of the standard rates, since the property counts as an additional one. First time buyer relief doesn't apply, even if you don't already own a home.
Rent counts as taxable income, reported through a Self Assessment tax return each year. Some running costs can be deducted against it before you're taxed, including:
If you sell the property later at a profit, capital gains tax applies at 18% on gains within your basic rate band, and 24% above it. This is after your annual exempt amount, which is £3,000 for the 2026 to 2027 tax year.
How do you finance a buy to let purchase?
Most buy to let purchases are financed through a standard buy to let mortgage. The right option depends on the property, and how quickly you need to move. A buy to let mortgage is the usual route for a ready to let property, whether you're buying as an individual or through a company, with rental income covering the repayments. If the property needs significant renovation before it can be let, or you're buying at auction where completion happens fast, a bridging loan can fund the purchase quickly. You can then refinance onto a standard buy to let mortgage once the work is done and the property is tenant ready. Use our buy to let mortgage calculator to get a sense of the monthly cost before you commit to a property.
What do you need to know about building a buy to let portfolio?
You're classed as a portfolio landlord once you hold four or more mortgaged buy to let properties, whether they're held in your own name or through a company, under rules set by the Prudential Regulation Authority. Once you cross that threshold, lenders assess your whole portfolio, not just the property you're buying, so expect to provide:
Many landlords fund their next purchase by remortgaging an existing property and releasing some of the equity in it, rather than saving a fresh deposit from scratch. This works because as you pay down a mortgage and property values rise, the gap between what you owe and what the property is worth grows, and a lender will let you borrow against some of that gap. It's worth reviewing your existing mortgages regularly with this in mind, since a property sitting on an old deal at a low loan to value could be doing more work for your next purchase.
Spreading properties across different areas and tenant types also reduces your risk. Relying on one street, one landlord licensing scheme, or one type of tenant means a local change, whether that's an oversupply of rentals, a licensing cost increase, or a shift in local employment, hits your whole portfolio at once. Treating the portfolio like a business from early on, with proper record keeping, a clear view of cash flow across every property, and a plan for how each purchase is funded, makes it far easier to keep track of as it grows and to satisfy a lender's portfolio checks when you come to remortgage or buy again.
What ongoing costs and responsibilities come with owning a buy to let property?
Owning a buy to let property brings ongoing costs beyond the mortgage, including landlord insurance, maintenance and repairs, and letting agent fees if you don't manage the tenancy yourself. You're also legally required to keep the property compliant, which means:
Depending on the property and area, you may also need a licence to let it. Larger shared houses classed as houses in multiple occupation need a mandatory HMO licence, and some local councils run selective licensing schemes covering all rented properties in a designated area. It's worth checking with the local authority before you buy.
What are common mistakes to avoid when buying a buy to let property?
The most common mistake is underestimating the total cost, by focusing on the purchase price and headline rent while forgetting everything else that comes with it. Rental yield can look strong on paper and still leave little margin once these are factored in:
Other mistakes worth avoiding include buying in an area without checking genuine tenant demand and achievable rent, and skipping a full structural survey to save money on a property that needs expensive work. It also pays to compare buy to let mortgage deals properly, since rates and fees vary between lenders, and even a small difference in rate adds up over a 25 year term.
Apply for a buy to let mortgage with Capitalise
Whether you're buying your first rental property, purchasing through a limited company or adding to an existing portfolio, Capitalise can help you explore your buy to let mortgage options. We work with a panel of 130+ UK lenders and can help you find funding suited to the property and your circumstances. A dedicated funding specialist supports you through the application process, helping you understand your options and move towards completion.
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