It’s a common question, what’s the minimum deposit for buy-to-let? Residential mortgages have become a lot more accessible, with 90% and even 95% LTV options now readily available – meaning buyers only need either a 10% or 5% deposit to get on the ladder.
But buy-to-let mortgages work differently to normal ones.
You’re going to need a bigger deposit, you’ll probably face higher fees and you’ll pay more interest.
Before we look at what the minimum deposit is for a buy-to-let property, first things first…
The first thing you need to know if you’re thinking about getting a buy-to-let mortgage is whether you’re eligible for one in the first place.
For starters, it’s easier if you’re already a homeowner or already own buy-to-let property.
Your credit history and your income will be a factor, but it’s not as important as it would be with a normal mortgage – what’s important is the property itself.
How much you’re able to borrow depends on how much the buy-to-let property is worth, and how much rent it’s predicted you’ll be able to get from the property. The quickest and easiest way to check the potential rent level of a property is to speak to a mortgage broker, who’ll be able to work it out quickly for you.
So the big question is whether you go for an interest-only mortgage, or do you pay the capital?
Most investors choose to only pay off the interest because that leaves you with more money left over each month. This means that when it comes to the end of your mortgage term you’ll need to either sell the property to pay the mortgage back, or sell some other asset.
Now, we understand that can sound scary but remember – you can re-mortgage, and thanks to inflation, over time the value of that initial debt will go down in real terms.
Most buy-to-let mortgages are a loan of 75% of the value of the property.
That means the minimum deposit for a buy-to-let property is?
It’s generally around 25% of the purchase price of the property.
So if your buy-to-let property is £100,000, you’d need a £25,000* deposit if you’re buying with a 75% LTV mortgage.
*This is excluding any additional fees which might be payable.
Investing through a limited company
Some people invest in buy-to-let through a limited company, and there’s now a lot of mortgages available for this. You’re still personally liable though, so be prepared to be credit checked just as if you were buying in your personal name. The paperwork also takes a bit longer too, so factor this in!
You need to work out which type of buy-to-let mortgage takes your fancy. Your options are fixed, tracker or variable. But what do these mean?
Fixed is when the interest rate you pay is fixed for a period of time, usually two, three, five or even ten years.
Tracker is when it changes in line with the Bank of England’s base rate.
And variable is when the lender can change their interest rate whenever they want, to whatever they want. The interest rate is the cost of borrowing the money from the lender, so you’ll want this to be as low as you can possibly get it. Also be very wary of the costs and fees of some mortgage products.
Now you’ve had a run-down of buy-to-let mortgages and you know what the minimum deposit is for a buy-to-let mortgage, you can head over and watch our buy-to-let mortgages explained video.