Buy-to-let mortgages explained: how they work and how to choose in 2026

A buy-to-let mortgage is a loan designed for a property you intend to let rather than live in, and lenders assess it on the rent the property will earn rather than on your salary alone. Getting it right is one of the most consequential financial decisions a landlord makes, because the product type, deposit, lender criteria and the timing of each remortgage shape your return for the life of the investment. This guide explains how buy-to-let lending works in 2026, what lenders actually test when they assess an application, and how to choose between the options, from a first purchase through to remortgaging a growing portfolio.

What makes a buy-to-let mortgage different

A buy-to-let mortgage is built for properties you let to tenants, and you cannot use a standard residential mortgage for one. Letting a home held on a residential mortgage breaches the lender’s terms and can trigger a demand for immediate repayment.

Lenders treat buy-to-let as business lending rather than consumer credit, and that has three practical consequences. First, most buy-to-let mortgages sit outside Financial Conduct Authority regulation, so you carry fewer automatic consumer protections than a homeowner does. The FCA regulates buy-to-let only in limited cases, most commonly where you let to a close family member, which counts as consumer buy-to-let. Second, affordability turns on the rent. The income the property is expected to generate takes centre stage, although most lenders also want evidence of personal income above a floor, usually around £25,000 a year. Third, deposits are larger. Where a residential mortgage can start from a 5% deposit, buy-to-let lenders typically want at least 25% of the property value, which lowers their risk and widens your choice of rates but ties up real capital before a single month’s rent arrives.

How lenders decide what you can borrow

The central test in buy-to-let lending is the interest coverage ratio, or ICR, which measures whether expected rent comfortably covers the mortgage interest with a margin for costs and risk. Lenders apply it at a stressed rate rather than your actual pay rate, so that the loan still works if rates climb. Stress rates commonly sit between about 5.5% and 8% depending on the lender and product, even when the rate you pay is lower.

This is why a property that looks strongly profitable on a simple yield calculation can still fail an affordability test. Among the self-managing landlords we work with on August, the deals that stall at this stage are rarely the ones with thin headline yields; they are the ones where the owner modelled the actual pay rate and never the stressed rate the lender would use.

The minimum ICR most lenders require is 125% for basic-rate taxpayers and for borrowers using a limited company, meaning rent must cover at least 125% of the stressed monthly interest. For higher-rate taxpayers borrowing in their own name, most lenders require 145%, because mortgage interest relief is restricted under Section 24 and their net income from the property is lower. Higher-rate landlords therefore face a higher bar than basic-rate landlords on the same property.

There is an important exception for five-year fixes. The Prudential Regulation Authority allows lenders to stress-test at or near the actual product rate when the fixed period is five years or longer, rather than at a higher notional rate. That makes five-year fixes meaningfully easier to pass on ICR, which is one reason they dominate the market. Where rent alone falls short, some lenders allow top-slicing, using your personal income to bridge the gap. Top-slicing tends to be reserved for higher earners and is not universally offered.

Deposit, loan-to-value and the rate you pay

Loan-to-value, the proportion of the property’s value you borrow, has a direct effect on your rate. The more equity you hold, the lower the lender’s risk and the cheaper the money.

The sweet spot for most landlords is 75% LTV, a 25% deposit, which opens the widest range of products and the most competitive pricing. You can borrow at 80% LTV with some lenders, but rates step up and criteria tighten, and products above 80% are rare in the buy-to-let market. For landlords with existing properties, capital growth or past repayments can push the effective LTV down on a purchase or remortgage and unlock a better tier, which is why your portfolio’s overall position can matter as much as any single property.

Interest-only versus repayment: the core choice

Most buy-to-let landlords choose an interest-only mortgage, and the reasoning is worth understanding. With interest-only, you pay only the interest each month and the capital you borrowed stays the same throughout the term, to be repaid in full at the end through a sale, savings or a remortgage. Borrow £200,000 over 25 years at 5% and the monthly payment is about £833; after 25 years you still owe £200,000.

A repayment mortgage charges interest and a slice of the capital each month, so the balance falls and you own the property outright at the end. On the same £200,000 at 5%, the monthly figure rises to roughly £1,170. Higher outgoings, but a clean finish.

The case for interest-only is cash flow. Lower payments mean rent is more likely to cover the mortgage with room to spare, which protects your position during void periods and supports the rental yield on the property. Landlords taking a long view typically plan to sell at a profit when the term ends and repay the capital from the proceeds. The risk is equally clear: if values fall you could owe more than the property fetches, and if your exit does not materialise you face a lump sum with no obvious source. Lenders now expect a credible repayment strategy rather than an open question deferred to term end. A repayment mortgage suits landlords building equity deliberately, perhaps for retirement income or to pass on, accepting tighter monthly cash flow in exchange for no capital exposure later. A middle route, part-and-part, repays some capital while keeping payments below a full repayment deal, and is worth asking about if you want to reduce end-of-term exposure without committing to the full cost.

Fixed, tracker and variable rates

Buy-to-let products come in the same shapes as residential ones. A fixed rate locks your interest for a set period, usually two or five years, giving certainty over monthly costs; at the end of the term you move to the lender’s standard variable rate unless you remortgage. A tracker follows the Bank of England base rate plus a set margin, so payments fall when the base rate falls and rise when it rises. The standard variable rate is the default you land on when a deal expires, almost always higher than market products and offering no certainty, so few landlords choose it deliberately.

Rates have been volatile. As of mid-2026 the Bank of England base rate stands at 3.75%, with forecasters split over whether it holds or edges up to 4% during the year. Average two-year fixed buy-to-let rates sat in the high-4% range as 2026 began, with five-year fixes a little above; the cheapest headline rates carry large arrangement fees, sometimes several percent of the loan, so the lowest advertised rate is rarely the cheapest deal once fees are counted. The pressure point now is refinancing: landlords rolling off five-year fixes taken in 2021 have seen monthly payments rise sharply, in some cases by more than a quarter. Most experienced landlords start the remortgage process three to six months before a deal expires, leaving time to compare the market and complete before sliding onto the standard variable rate.

How to remortgage a buy-to-let property

Remortgaging a rental means switching to a new deal at the end of a fixed or tracker period, either with your current lender as a product transfer or with a new one. It is among the most important decisions a landlord makes, and one many handle reactively. Start by knowing your current end date and your current LTV: if local values have risen or you have made repayments, your LTV may now be lower than when you first borrowed, qualifying you for a cheaper tier.

Look beyond the headline rate. Arrangement fees, valuation and legal costs, and any early repayment charge all change the true cost of switching. A higher rate with no arrangement fee can beat a lower rate with a £2,000 fee over the fixed term, especially on smaller loans. Knowing whether the new cost still stacks up against the rent depends on clean figures for every cost the property carries, including the mortgage. Landlords who manage their lettings on August consistently find that the remortgage conversation is far easier when the cost data is already in one place rather than reconstructed from bank statements the week before applying. August’s expense tracking records every cost against each property, so the net position behind a remortgage decision is there when you need it.

Portfolio landlord rules: what changes at four properties

If you hold four or more mortgaged buy-to-let properties you are a portfolio landlord under rules the Prudential Regulation Authority introduced in 2017. The classification triggers underwriting that looks across your whole portfolio, not just the property you are mortgaging.

Lenders who accept portfolio landlords, and not all do, will ask for a full schedule of every property you own, its value, outstanding mortgage, rent and LTV, then stress-test the portfolio as a whole against their ICR requirements. A single weak property that fails the stressed test can block borrowing on an otherwise strong new purchase. Addressing that usually means selling the underperformer, remortgaging it to cut the monthly interest, or raising its rent to improve coverage before you apply elsewhere. Many lenders also ask for a business plan and at least two years of letting experience before they lend to portfolio borrowers. Specialist lenders such as Paragon and Landbay built their businesses around this segment, while several mainstream lenders are more cautious or have stepped back from it. Houses in multiple occupation add a further layer, with their own products, often higher deposits, and scrutiny of licensing.

Limited company and SPV buy-to-let

A growing share of new buy-to-let borrowing runs through a limited company, usually a special purpose vehicle set up to hold property. The driver is tax: a company is not subject to Section 24 and can still deduct mortgage interest as a business cost before corporation tax, where an individual higher-rate landlord cannot. That can change the maths on a heavily mortgaged property substantially.

The trade-offs are real. Company products usually carry higher rates and fees, moving an existing portfolio into a company can trigger Stamp Duty Land Tax and Capital Gains Tax, and extracting profit as dividends has its own tax cost. Whether incorporation makes sense depends heavily on your portfolio size, tax position and plans, and it warrants advice from an accountant before you commit. On the mortgage itself, company borrowing is widely available but underwritten in more detail, and personal guarantees from directors are standard.

Section 24 and what it means for your mortgage choice

No buy-to-let mortgage decision in 2026 is complete without Section 24. Since April 2020, an individual landlord holding property in their own name can no longer deduct mortgage interest from rental income before working out tax. Instead they receive a basic-rate, 20%, tax credit on finance costs, a position HMRC sets out in its guidance for residential landlords.

The effect on higher-rate taxpayers is significant. A landlord paying 40% tax with substantial interest costs pays tax on gross rent and then receives only a 20% credit, producing a higher effective rate on profit than the headline band suggests. For some highly leveraged landlords, Section 24 has turned paper profit into real loss. It also feeds straight back into your mortgage: the 145% ICR that lenders apply to higher-rate borrowers reflects exactly this lower net income. Understanding Section 24 is therefore not a separate exercise from understanding your mortgage; the two are tied together.

Upfront costs: deposit, fees and the stamp duty surcharge

The deposit is the largest cost, but it is not the only one. Arrangement fees, a valuation, legal costs and landlord buildings insurance all sit on top, and they all affect the true return.

Stamp duty is the cost that most often catches new landlords out. In England and Northern Ireland, buying an additional residential property attracts the higher rates for additional dwellings: a 5% surcharge on top of the standard rates, raised from 3% on 31 October 2024, set out in the government’s SDLT guidance. Companies and non-UK residents face further loadings. Scotland and Wales apply their own equivalents, the Additional Dwelling Supplement and the higher-rate Land Transaction Tax. Before you make an offer, model the full upfront figure, including the surcharge, with the August buy-to-let stamp duty calculator so the number does not surprise you at completion.

Consent to let: a note for accidental landlords

Not everyone sets out to build a portfolio. Some move for work, cannot sell in a slow market, or inherit a property they want to let for a while. If the property still carries a residential mortgage, you need consent to let from your lender before you let it legally; doing so without consent breaches your terms and can prompt a demand for repayment.

Consent to let is temporary permission, usually for one to two years, with conditions attached. Most lenders charge a higher rate, add an administration fee, and require proper landlord insurance. It is not a long-term answer. If you expect to let for more than a year or two, moving to a proper buy-to-let mortgage is usually the right step.

How to choose, and a checklist before you apply

There is no single best buy-to-let mortgage, only the right one for your tax position, your timescale and the property. Work through these before you approach a lender:

• Know your expected rent. Ask local letting agents for a realistic current figure rather than an optimistic one, because the whole ICR test rests on it.

• Test the ICR. Model the numbers under typical stress conditions with the August buy-to-let mortgage calculatorbefore you talk to a lender.

• Understand your tax position. If you pay higher-rate tax, the 145% ICR applies and your borrowing capacity is lower than a basic-rate landlord’s on the same rent.

• Have your documents ready. Lenders want around three months of bank statements, proof of income, and for portfolio landlords a full schedule of existing properties.

• Count every cost. Arrangement fees, valuation, legal costs, the stamp duty surcharge and insurance all change the real return.

• Build in a buffer. Void periods are part of letting; a mortgage that only works at full occupancy is one that creates stress the moment it is not.

Comparing the whole market across dozens of lenders is hard to do well alone, which is why most landlords use a broker. Our guide to choosing a mortgage broker for landlords explains what a good one should do for you. Whichever route you take, the foundation of a sound decision is knowing your real numbers, property by property. August’s rent tracking shows rent landing against the mortgage in real time, so you can see at a glance whether each property still covers its cost.

Frequently asked questions

How much deposit do you need for a buy-to-let mortgage? 

Most lenders want at least 25%, which puts you at 75% loan-to-value and opens the widest choice of rates. Some lend at 80%, but rates and criteria tighten, and very little is available above that. A larger deposit lowers the lender’s risk and usually buys a cheaper rate.

Can first-time landlords get a buy-to-let mortgage? 

Yes, though the criteria are stricter and the choice of lenders narrower. Some lenders also ask first-time landlords to already own their own home, and a few set a higher minimum deposit. A broker who works with first-time landlords can point you to the lenders most likely to say yes.

Are buy-to-let mortgages always interest-only? 

No. Interest-only is the most common choice because it keeps monthly payments low and protects cash flow, but repayment and part-and-part products are available. Interest-only means repaying the full capital at the end of the term, so lenders expect a credible plan for doing so.

How does Section 24 affect how much I can borrow? 

Higher-rate landlords borrowing in their own name can no longer deduct mortgage interest before tax and receive only a 20% credit, which lowers their net income from the property. Lenders reflect this by applying a 145% interest coverage ratio to higher-rate borrowers, against 125% for basic-rate and company borrowers, so the higher-rate landlord can borrow less on the same rent. Managing the records behind that decision is far simpler with everything in one place; you can start for free on August and keep rent and costs property by property.

Disclaimer: This article is a guide and not intended to be relied upon as legal, financial or professional advice, or as a substitute for it. August does not accept any liability for any errors, omissions or misstatements contained in this article. Every effort was made to be accurate at the time of writing in 2026. Always speak to a suitably qualified professional, including a regulated mortgage adviser, before making borrowing decisions.