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Can I Get a Buy-to-Let Mortgage with a 5% Deposit?

Find out what you need to know about getting a buy-to-let mortgage with only 5% deposit. Learn about loan-to-value ratios and rental coverage requirements.

Can I Get a Buy-to-Let Mortgage with a 5% Deposit?

The short answer is no, the minimum deposit required by specialized lenders for a purchase-to-rent mortgage is usually 15% of the value of the property (although it can range from 20 to 40%). This means that you pay the interest each month, but not the principal amount. Having a deposit of 10% of the value of the property means that you will have to borrow the remaining 90%. This type of loan is known as a 90% Loan-to-Value (LTV) mortgage.

Rental coverage will also be subject to a “stress test” to check if there are higher interest rates than those found on the mortgage (up to around 5.5%) when evaluating its affordability. A rental coverage requirement is the minimum amount of rent you must be able to pay each month to get a mortgage. The rules were recently amended so that homeowners now receive a 20% tax credit in connection with the payment of purchase-to-rent mortgage interest. Also, expect to be turned down if your anticipated rental income doesn't cover at least 125% of the mortgage repayments.

In general, lenders typically request a deposit of around 25% of the value of the property when looking to take out a purchase-to-rent (BTL) mortgage. A variable-rate mortgage, in which your rate may change over time, may work in your favor if interest rates fall, but your payments will increase if rates start to rise. In fact, if rates continue to rise, you could run the risk of not being able to make your mortgage payments at all. However, if you only intend to rent your home for a short period, perhaps six to 12 months, you can ask your lender to give you consent to rent, in which you keep your residential mortgage but are allowed to move tenants temporarily.

Before giving you a low-deposit mortgage, the lender will likely consider the following (along with other factors). The market for small deposit mortgages is not closed and large mortgage lenders continue to offer them. We'll connect you with a real human being who's an expert in your circumstances with a proven track record of finding winning mortgages. However, if you could raise another 20,000 pounds of your savings to make a deposit of 60,000 pounds, you could consider mortgages with an 85% LTV.

Homeowners can no longer distribute the capital in their portfolio and lenders will not grant a purchase-to-rent mortgage if the landlord has a property that is not profitable. For example, several lenders offer mortgages that allow your parents (or other family members) to put their properties as collateral or deposit some savings in a linked account, rather than a large deposit.

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