A buy to let mortgage is the loan on a home bought to rent out, and the decision rests on something different from the loan on the home you live in: on a residential loan the lender looks at your income, on buy to let it looks mainly at the rent the property produces. Your salary serves to clear the thresholds; the figure that sets the loan is the rent. This page works through the three legs of the decision in turn: the rental test, the deposit, and whether to buy in your own name or through a company. capital.works® is registered with the FCA for finance in the UK and a member of the NACFB.
The rental stress test: the sum that sets your loan
The lender tests the rent not at today’s rate but at a higher one called the stress rate, and requires the rent to exceed that interest by a set ratio. The ratio is the interest coverage ratio, known in the market as ICR. Common practice in the 2026 market runs like this: a stress rate of around 5.5% on fixes of five years and over, and the product rate plus two points on shorter terms; the ratio is 125% for a landlord taxed at the basic rate, 145% for one in the higher band, and 125% again where the purchase runs through a limited company.
The sum is clearest with figures in it. A £250,000 flat, 75% loan to value, a 5.5% stress rate:
| Item | Figure |
|---|---|
| Property price | £250,000 |
| Deposit (25%) | £62,500 |
| Loan amount | £187,500 |
| Annual interest at the stress rate | £10,312 |
| Monthly rent needed at 125% | £1,074 |
| Monthly rent needed at 145% | £1,246 |
So the same flat, the same loan and the same rate ask for a rent between £1,074 and £1,246 depending on your tax band. That £172 gap decides how much you can borrow although the rent itself has not moved: if the rent falls short the lender cuts the loan, which means you are asked for a larger deposit. This is why the rent actually achieved in that postcode matters as much as the price when you choose a project, and the current rental listings in that postcode are the measure, not the developer’s estimate.
To test the rent and the net yield after costs with your own figures you can use our rental income calculator, and for the yield bands recorded by city and borough see our rental yield page page.
Deposit: what each band buys you
The floor in buy to let is usually a 25% deposit, that is 75% loan to value. Raising the deposit changes two things at once: the rate band drops and the rental test eases, because a smaller loan carries smaller interest at the stress rate. In practice the breaks fall at 75%, 70%, 65% and 60% loan to value; for the same flat, the gap between the rate offered in the 60% band and the rate in the 75% band brings back part of the extra deposit over the total you pay.
There are costs to set beside the deposit: stamp duty (a surcharge on an additional dwelling, and a further surcharge on top if you do not live in the UK), legal fees, the valuation, the lender’s arrangement fee and two or three months of cash to cover the gap until the first rent arrives. You can work the total out in our stamp duty calculator and in our purchase cost calculator.
In your own name, or through a limited company
Since 2020 a landlord letting in their own name can no longer deduct the mortgage interest in full from the rental income; relief on the interest is given at the basic rate. For a landlord in the higher band that means a clearly smaller amount left in hand from the same rent. Where the purchase runs through a limited company (the kind investors set up is called an SPV) the interest counts as a company expense and the remaining profit is subject to corporation tax. The rental test also being run at 125% in a company means a larger loan comes out of the same flat.
It is not free: through a company the rate is usually a little higher, fewer lenders take the case, a personal guarantee is asked for, accounts and a return have to be filed every year, and a second layer of tax appears when you move the money from the company to yourself. Which one suits you depends on your tax band, how many properties you will buy and when you want to use the money; this is an accounting decision and it should be taken with your accountant. On the finance side we work out in advance on what terms each structure could be funded, and set the numbers side by side.
| In your own name | Limited company (SPV) | |
|---|---|---|
| Deducting the interest | Restricted, basic rate relief | A company expense |
| Rental cover ratio | 125% basic rate, 145% higher rate | Usually 125% |
| Rate band | Lower | Slightly higher |
| Number of lenders | Broad | Narrower |
| Annual obligation | Personal tax return | Company accounts and return |
| Getting the profit to you | Direct | A second layer of tax |
After the fourth property: portfolio landlord underwriting
Someone with four or more mortgaged rentals counts as a portfolio landlord in the lender’s eyes, and the underwriting changes: not only the rent on the flat you are buying but the rent and debt balance of the whole portfolio, its overall loan to value, the void rate and usually a business plan. At this stage how the file is prepared can decide the outcome: the same portfolio can be approved on a well ordered schedule and declined on a scattered one.
If you live outside the UK
The buy to let door is not closed to a buyer living abroad, but it is narrower: a larger deposit, fewer lenders, extra paperwork where the income is earned abroad and, often, notarised identity and address verification. A British passport holder living abroad (an expat) and a buyer with no UK connection at all are assessed differently, and how income documents from countries such as Türkiye are accepted varies by lender. Setting the process up for this from the start is far quicker than applying at the wrong door and being declined.
When the loan is arranged on an off-plan purchase
The commonest mistake on an off-plan purchase is trying to arrange the loan at exchange. Mortgage offers are valid for a limited time while completion may be two or three years away, so the loan is arranged as completion approaches. What has to be done at exchange is to make sure the loan will be there on that date: that the test passes at today’s rent, that the flat is of a lendable kind, and how the developer’s incentives will land in the valuation. A developer contribution (service charge paid, a furniture pack, help with the deposit) must be declared to the lender and can pull the valuation down.
Completion dates, service charges and entry prices for the projects in our portfolio are written on their listing pages; you can read the same list by developer ya da by postcode.
What we do
capital.works® is registered with the FCA for finance and a member of the NACFB. The way we work: first we calculate at which ratio the test passes on the rent of the flat you are buying, then we set the two scenarios, your own name and a company, side by side, and then we take the file to the sources that fit your profile. We do not share institution names, because which source fits depends on the buyer’s profile and an expectation built on a name usually turns out wrong. On tax you decide with your accountant; we produce the figures on the finance side.
For more, see our finance solutions page, for how the rates are set our mortgage rates page, if you are looking for an interest free structure our Islamic mortgage page, and for the whole buying process our Buying property in the UK page.
Frequently asked questions
How much deposit does a buy to let mortgage need? The common floor is 25%, which is £62,500 on a £250,000 flat. Raising the deposit to 30% or 35% both lowers the rate band and eases the rental test.
How much should the rent be? The rent is required to exceed the annual interest calculated at the stress rate by a ratio of between 125% and 145%. On a £250,000 flat with a 75% loan that means a rent between £1,074 and £1,246 a month.
Can I get a buy to let mortgage without a salary? The rent is what sets the loan, but lenders mostly look for a minimum income and a source of income other than the rent. Pension, rental and dividend income can be accepted; which of them counts varies by lender.
Is buying through a limited company always better? No. It usually comes out ahead for a landlord in the higher tax band who will buy several properties; for someone buying one property and paying tax at the basic rate, the annual cost of the company can eat the gain. The decision turns on your tax band and the number of properties.
I do not live in the UK, can I get a loan? You can, on narrower terms: a larger deposit, fewer lenders and extra paperwork for income earned abroad. The application needs to go to a source that fits this profile from the start.
When should I arrange the loan on an off-plan purchase? As completion approaches, because offers are valid for a limited time. What has to be done at exchange is to see in advance that the loan will be there on that date and how the developer’s incentives will affect the valuation.
The rates and ratios on this page describe common practice in the 2026 market; they are not an offer or personal advice. The figures vary by lender, by the nature of the property and by the buyer’s profile.
