A Buy-To-Let Mortgage Guide

What Is a Buy-to-Let Mortgage?

A buy-to-let mortgage is designed for people who want to purchase property to rent out rather than live in themselves. Unlike residential mortgages, lenders focus more on expected rental income than your personal earnings.

Although your income is still taken into account, most lenders want to see that your rental income will cover 125% to 145% of your mortgage payment. This requirement can vary based on whether you’re a basic or higher-rate taxpayer.

Individual vs Limited Company Buy-to-Let Mortgages

There are two common ways to hold a buy-to-let mortgage: in your personal name or through a limited company.

Individual Buy-to-Let

This is the most popular route for first-time landlords. The property is owned in your name, and the income is taxed as personal income. For basic-rate taxpayers, this can be manageable. However, if you’re a higher-rate taxpayer, you may face higher tax bills due to limited mortgage interest relief.

Limited Company Buy-to-Let

Setting up a limited company to buy rental property has become more popular, especially among higher-rate taxpayers. One of the main advantages is that mortgage interest can be fully offset against profits, which helps reduce your tax bill. Furthermore, corporation tax is often lower than income tax rates.

However, there are some trade-offs. Limited company BTL mortgages often come with higher interest rates, fewer lender options, and additional legal costs.

What Is a Consumer Buy-to-Let Mortgage?

A consumer buy-to-let mortgage is a niche product designed for so-called “accidental landlords.” This includes people who, for example, inherit a home or rent out their property after moving in with a partner. Unlike standard BTL mortgages, these are regulated by the Financial Conduct Authority (FCA), offering more protection to borrowers.

You may qualify for a consumer BTL if:

• You don’t own four or more rental properties
• You didn’t originally purchase the home with the intent to rent it
• Letting property is not your primary business

Portfolio Landlords vs Non-Portfolio Landlords

A portfolio landlord is someone with four or more mortgaged buy-to-let properties. As a result, lenders will assess your entire portfolio before approving a new mortgage. They look at:

• Total property values
• Rental income across your portfolio
• Outstanding mortgage balances
• Business plans and risk exposure

This more detailed review is to ensure you are not over-leveraged. In contrast, non-portfolio landlords (owning fewer than four mortgaged properties) enjoy a simpler application process.

Buy-To-Let Limited Company Set-Up

Registering with Companies House costs from just £12 and can be done by post or online. A few things you should bear in mind, however, are:

• Creating a unique company name
• Appointing at least one Company Director
• Providing a definition of business activity
• Getting an address for your company (can be residential)
• Setting up a business bank account
• Applying for Corporation Tax within 3 months

Costs of a Buy-to-Let Mortgage

When taking out a buy-to-let mortgage, understanding all the associated costs is vital. These can vary depending on whether you apply as an individual, through a company, or as a portfolio landlord.

1. Deposit Requirements

Most lenders ask for a deposit of 20% to 25%, though limited company applicants may need more. Some high-risk cases may even require a 30–35% deposit.

2. Interest Rates

Buy-to-let mortgage interest rates are generally higher than those for residential properties. Limited company products may also come with higher rates due to added complexity.

3. Arrangement Fees

Many BTL products include fees. These can be a flat amount or a percentage of the loan—usually between 1% and 2%.

4. Valuation and Legal Fees

You’ll need to pay for property valuations and legal services. Company ownership often increases legal fees due to extra documentation and limited company structuring.

5. Stamp Duty

Expect to pay an additional 3% stamp duty surcharge on any rental property purchase, regardless of whether it’s owned personally or via a company.

6. Tax on Rental Income

Individuals pay income tax on rental income, while companies pay corporation tax. Make sure to speak with a tax advisor to identify which structure works best for your situation.

7. Ongoing Costs

These include landlord insurance, letting agent fees, maintenance, and periods when the property is vacant (known as void periods).

Final Thoughts

Whether you’re just getting started as a first-time buy-to-let landlord or you’re managing a growing property portfolio, choosing the right mortgage setup is essential. From consumer BTLs and individual mortgages to limited company buy-to-let options, there are multiple routes to explore.

Each path has its pros, cons, and costs. While individual BTLs offer simplicity, limited company structures may be better for long-term tax efficiency. Likewise, portfolio landlords face stricter checks but may benefit from better financing strategies.

At Orchard Mortgage Solutions, we offer tailored advice on all types of buy-to-let mortgage deals, helping you secure the right product for your investment goals. We’ll walk you through the options, compare lenders, and ensure everything is clear, compliant, and cost-effective.