What Is a Buy-to-Let Mortgage?
A buy-to-let (BTL) mortgage is designed for people purchasing property as an investment to rent out rather than live in.
They differ from standard residential mortgages in several key ways:
| Feature | Residential Mortgage | Buy-to-Let Mortgage |
| Purpose | Owner-occupied home | Property to rent out |
| Deposit Required | From 5% | Usually 20–25% |
| Interest Type | Standard rates | Often interest-only |
| Affordability Test | Based on income | Based on expected rental income |
Most BTL investors use interest-only mortgages, meaning you only pay interest each month, keeping payments low while the property hopefully grows in value.
How Buy-to-Let Mortgages Work
Lenders base your borrowing amount on rental income, not salary.
Typically, your rent must cover 125%–145% of the monthly mortgage interest, assuming an interest rate of 5%–6%.
Example:
If your rent is £1,000/month, the lender might lend enough so that the interest-only payment is £690–£800/month (depending on your tax rate).
Limited Company vs Personal Buy-to-Let Ownership
One of the biggest decisions for landlords today is whether to buy property personally or through a limited company (SPV – Special Purpose Vehicle).
Here’s how the two compare:
| Factor | Personal Ownership | Limited Company Ownership (SPV) |
| Tax on Rental Profits | Income tax (20%, 40%, 45%) |
Corporation tax (25% or lower with reliefs)
|
| Mortgage Interest Relief | Restricted to 20% credit | Fully deductible from profits |
| Profit Extraction | Personal income taxed |
Can reinvest profits within the company
|
| Mortgage Options | Wider lender choice | Fewer, more specialist lenders |
| Setup & Admin | Simple |
Requires company setup, annual accounts
|
| Stamp Duty | 3% additional rate | Same for companies |
| Exit (Selling Property) | CGT at 18%/24% | Corporation tax on gains |
| Ideal For | Small-scale or casual landlords |
Long-term investors / portfolio landlords
|
Advantages of a Limited Company Buy-to-Let
- Tax Efficiency – You can offset all mortgage interest and expenses.
- Lower Corporation Tax – Pay 25% vs potentially 40–45% income tax.
- Reinvest Profits Easily – No personal tax until dividends are withdrawn.
- Estate Planning Benefits – Shares can be gifted or inherited strategically.
- Professional Portfolio Structure – Keeps your personal credit and risk separate.
Disadvantages of a Limited Company Buy-to-Let
- Higher Mortgage Rates – Limited company BTL rates are often 0.5–1% higher.
- Fewer Lenders – Fewer options, though this is improving in 2025.
- More Administration – Annual company accounts and tax returns required.
- No Capital Gains Allowance – Companies don’t get the £3,000 CGT exemption.
- Dividend Tax on Withdrawals – You’ll pay additional tax when drawing profits personally.
Example Scenario
Let’s say you own 3 rental properties generating £30,000 profit per year:
| Personal Ownership | Limited Company | |
| Rental profit | £30,000 | £30,000 |
| Tax (40%) / Corp Tax (25%) | £12,000 | £7,500 |
| Net retained profit | £18,000 | £22,500 |
The limited company route saves £4,500 in tax — before dividend tax. But whether it’s worth it depends on your future plans and exit strategy.
Top 10 Buy-to-Let Mortgage FAQs
How much deposit do I need for a buy-to-let?
Most lenders require 25%, but some accept 20% with higher rates.
Can I use rental income instead of my salary for affordability?
Yes lenders base loans on rental income and property yield, not personal income.
Can I buy a BTL as a first-time buyer?
Some lenders allow it, but it’s more difficult and requires a larger deposit (30%+).
Can I live in my buy-to-let property?
No it must be rented. Living there breaches your mortgage terms.
Is an SPV better than personal ownership?
It depends on your tax bracket and long-term goals. Higher-rate taxpayers often benefit from an SPV.
What’s an SPV limited company?
A Special Purpose Vehicle set up specifically for holding property — usually registered under SIC code 68209 (letting and operating property).
Can I transfer my existing property into a company?
Yes, but it triggers Stamp Duty and Capital Gains Tax, so take advice first.
Do lenders need company accounts?
Yes usually 2 years’ accounts, though some accept one year or projections for new SPVs.
Can I get an interest-only buy-to-let mortgage?
Yes, it’s common you pay interest only, then repay capital by selling or refinancing later.
What happens if interest rates rise?
Your monthly payments increase if on a variable rate — always stress test your rental yield.
Final Thoughts
Buy-to-let remains a powerful wealth-building strategy but the structure you choose matters.
For casual landlords, personal ownership is simpler. For higher-rate taxpayers or portfolio investors, a limited company (SPV) can offer major long-term advantages.
If you’d like tailored guidance, contact ProMoney Mortgage Services Ltd, authorised by St. James’s Place, for advice on structuring your property investments tax-efficiently.