Buy-to-Let Mortgage Guide UK: Rates, Criteria and Tax in 2026

Buy-to-let (BTL) mortgages are specifically designed for properties that will be let to tenants. They are regulated differently from residential mortgages and assessed on different criteria. Understanding how they work is essential for any landlord borrowing to fund a rental investment.

How Buy-to-Let Mortgages Differ

Rental Coverage (ICR)

The key affordability metric for BTL mortgages is the Interest Cover Ratio (ICR). Lenders require the monthly rent to cover the monthly interest payment by a certain multiple:

• **Standard rate taxpayer:** Typically 125%
• **Higher/additional rate taxpayer:** Typically 145%
• **Test rate:** The lender’s stress-test rate (typically 5–5.5% regardless of the actual product rate)

**Example:** Monthly interest at the stress-test rate = £800. At 145% ICR, required rent = £1,160/month.

If the rental income is insufficient, you can reduce the loan amount, increase the deposit, or find a higher-yielding property.

Deposit Requirements

Most BTL lenders require a minimum 25% deposit (75% LTV). Some will lend at 80% LTV (20% deposit) but at significantly higher rates. The best BTL rates are typically at 60–65% LTV.

Personal Income Requirements

Most BTL lenders also require the borrower to have a minimum personal income of £25,000–£30,000 per year (from employment, self-employment, or other rental income). Portfolio landlords (4+ mortgaged properties) face additional requirements under PRA rules.

Interest Only vs Repayment

The vast majority of BTL mortgages are taken on an interest-only basis because:

• Lower monthly payments maximise cashflow
• Capital is expected to be returned through property sale
• Interest costs are deductible against rental income (subject to Section 24 restrictions)

Interest-only BTL mortgages have no mandatory repayment vehicle requirements (unlike residential interest-only), but landlords should have a clear exit strategy.

Section 24: The Tax Change That Changed Everything

Since April 2020, landlords can no longer deduct mortgage interest from rental income when calculating tax liability. Instead, they receive a 20% tax credit on mortgage interest costs.

For basic rate taxpayers, the effect is broadly neutral. For higher-rate taxpayers, this is a significant additional cost. A landlord paying 40% tax on £10,000 of mortgage interest now faces an additional tax bill of approximately £2,000 per year compared to the pre-2017 system.

This change drove many landlords to transfer rental properties to limited companies, where the full mortgage interest cost remains deductible as a business expense.

Limited Company Buy-to-Let

Many new landlords and portfolio investors now purchase BTL properties through a Special Purpose Vehicle (SPV) limited company. Advantages include:

• Full mortgage interest tax deductibility in the company
• Corporation tax (19–25%) on profits rather than personal income tax (up to 45%)
• Potential inheritance tax planning advantages

Disadvantages:

• Higher BTL mortgage rates (company BTL typically 0.2–0.5% more than personal)
• More complex accounting and legal costs
• No personal CGT annual exempt amount on company property sales
• Extraction of profits incurs further tax (salary or dividends)

Whether a company structure makes sense depends on your tax position, number of properties, and long-term plans. Take advice from an accountant who specialises in property investment.

Choosing the Right BTL Product

For most landlords, the choice is between:

• **2-year fix:** Lower initial rate; more frequent remortgage admin
• **5-year fix:** Higher initial rate; less admin; better for stable long-term holds
• **Tracker:** Immediately benefits from base rate cuts; payment risk if rates rise

Portfolio landlords with multiple properties often stagger their fixed term end dates to avoid having to remortgage multiple properties simultaneously.