How Much Deposit Do I Need For A Buy-To-Let Mortgage?

You should expect to need a minimum deposit of 25%. Some lenders might let you pay only 20%, but they will ask you to meet stricter criteria. 

Deposits below 20% are quite unusual and have even tougher requirements. For the best mortgage deals, aim to save up to 40% if you can.

Lenders look at several factors when deciding how much deposit you need. One major factor is the loan-to-value (LTV) ratio they are willing to offer. This ratio compares the amount of your loan to the value of the property. 

Generally, the highest LTV deals, which require smaller deposits, are more often available for previously owned houses. 

In contrast, flats, maisonettes, and new builds usually need larger deposits. For instance, you may need at least a 25% deposit if you are buying a new flat.

What Counts As Deposit For Buy-To-Let Lenders?

A deposit for a mortgage is the chunk of money you pay upfront towards buying a house. For a buy-to-let mortgage, here’s what lenders usually accept as a deposit:

  • Savings
  • Equity (Mortgaging another property)
  • Gift
  • Sale of assets
  • Inheritance
  • Concessionary purchase
  • Redundancy pay
  • Builders deposit
  • Unsecured loan
  • Gifted deposit
  • Loan from family

It’s crucial to show proof of where your deposit comes from. Lenders need to see this to make sure the money is legally yours. 

This helps them ensure that all aspects of the mortgage are clear and above board.

Buy-to-let Mortgage With A Low Deposit

Getting a buy-to-let mortgage with a low deposit can be tough, but it’s not impossible. If you want to secure a mortgage like this, you need a strong application. 

First, ensure the property you want to buy can bring in a good rental yield, ideally between 5-8%. This shows lenders that you can cover the mortgage payments with the rent you receive. 

Most lenders will want to see your rental income to cover at least 125% of your mortgage payments.

You also need a good credit score. This tells lenders you are reliable and manage your money well. 

Besides this, having enough income to cover the mortgage payments even without the rent is a big plus. 

Lastly, you need to meet the lender’s age requirements, which usually means you need to be 21 or older.

If you tick all these boxes, you might just be able to get that buy-to-let mortgage with a smaller upfront payment.

How Deposit Affects Buy-To-Let Rates

The size of your deposit can really change the mortgage rates you get. Putting down a larger deposit usually gets you better interest rates. 

This is great because it means you’ll pay less over time and your monthly payments can be lower. It also shows lenders that you’re less of a risk, which might open the door to more mortgage options.

But what if you can’t afford a big deposit right now? You might find that you’re offered higher interest rates and that fewer lenders are willing to give you a loan. 

If this is your situation, don’t worry too much. 

You have the option to remortgage to a better deal once your initial fixed deal ends. This could be a good time to look for a better rate. 

You might get cheaper rates if your property’s value has increased or your financial situation has improved.

Key Takeaways

  • You usually need a minimum 25% deposit for buy-to-let mortgages, but saving up to 40% can secure better deals.
  • Lenders accept various sources for a deposit, such as savings, equity, gifts, or sale of assets, but you must prove the source.
  • Securing a mortgage with a low deposit is challenging but possible with a good rental yield, strong credit score, sufficient income, and meeting age requirements.
  • A larger deposit generally leads to lower interest rates and better mortgage terms.

The Bottom Line

Saving enough for a deposit is a key step in securing a buy-to-let mortgage. Typically, you need at least a 25% deposit, but more can secure better rates. Here are some quick tips to help you save for that deposit:

  • Set a savings goal based on the property price you aim for.
  • Cut back on expenses to boost your savings rate.
  • Consider a savings account that offers good interest rates, helping your deposit grow faster.

A mortgage broker can be very helpful in this process. They can guide you through the options and help you find a mortgage that fits your financial situation. Brokers know about deals that aren’t always available directly from lenders.

Need a broker? Get in touch with us. We’ll connect you with a reliable mortgage broker who can simplify finding the right mortgage for you.