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How Much Deposit Do You Need for Buy-to-Let Property?
If you’ve ever considered going into property investment, one of the biggest barriers of buy-to-let mortgages compared to normal residential mortgages is the size of the deposit that has to be put down on the property before it can be considered an ‘investment property’.
Although there are ways in which we’ll talk about that will help you get a lower deposit in this blog post, you’re still going to have to fork out a deposit to get onto the property ladder in this way.
Here, we’ll look at how much of a higher deposit you’ll need for an investment property, how to get a good buy-to-let mortgage deal, how you can work out what mortgage suits your deposit amount and much more.
How Much Deposit is Needed For a Buy-to-Let Mortgage?
For your investment property, you can expect to put down anywhere between 20 and 40% for your buy-to-let mortgage, with 25% being the most common among all. Depending on the price of the property and the area you’re looking at, this can be a pretty expensive fee to put down from the get-go and requires a larger deposit than a typical property.
Whether or not you get a lower or higher deposit offered to you can depend on your financial profile, such as transaction history, credit information, financial products, etc. However, even if you have a great history, it all comes down to whether the rates the lenders offer you.
How Do You Qualify For a Buy-to-Let Mortgage?
There are quite a few criteria that you must reach in order to be considered for qualification for a buy-to-let mortgage, which are the following:
- You need to be at least 18 years of age or older (maximum age of 75 usually)
- Your credit history needs to show that you’re reliable when borrowing money
- You typically have to have an income of £25,000 or over
- You don’t need a residential property to apply
- You can apply on your own or with up to three others
- You must have a deposit of at least 20%, but mostly at least 25% to put down
- The expected rental income typically has to be 125% or more of your monthly interest payments
As you can see, this is just a basic overview of criteria you will probably have to meet, but there are still more that certain lenders may present you when looking to buy, so be aware of that.
What Types of Deposits Do Lenders Accept?
Although there are many ways to raise the capital for your deposit, you can’t just turn up with money out of thin air and expect them to accept it. You have to prove where the money came from and this is the determining factor in whether or not you get accepted:
| Where is the deposit coming from? | Meaning |
|---|---|
| Your own personal savings | Money that you’ve saved up yourself in a separate account |
| A gifted deposit | Money gifted to you by loved ones close to you such as parents, grandparents, or siblings |
| Selling another property you owned | You’ve sold another home and used income from that to put this new deposit down |
| A loan from your family | One of your family members takes out a loan for your deposit |
| Your inheritance money | Where you use money left behind from the passing of your parents to put a deposit down |
| A builders deposit | A financial benefit that builders can offer you to lower your purchase price if they can offer value through their work |
| A release of equity | Releasing equity in your own home to use as a deposit on an investment property |
| An unsecured loan | A loan that doesn’t require collateral to borrow money in order to put a deposit down on a home |
| Your redundancy pay | The money you get after you get dismissed from your job can be used as a deposit. |
How to Get the Lowest Buy-to-Let Mortgage Deposit Possible
There isn’t much to this, apart from the fact you need to:
- Raise as much money as you can from any of the sources above
- Speaking to experts within the field on how you can make this work
- Making your application for the buy-to-let mortgage absolutely flawless
Although goalposts can’t be moved much in this instance, there are still ways you can get the best deals with mortgage brokers, using letting agents in your local area, and other property experts. It’ll just make sure you have everything in place so there are no silly costs involved that you didn’t realise you were going to be paying. Peace of mind, as it’s called.
How Using a Buy-to-Let Mortgage Calculator Can Help
A buy-to-let mortgage calculator can help you get an estimate of what the property you can rent out will be worth, how much your mortgage payments can be, and whether or not the property is affordable for your initial deposit.
Barclays Bank does a brilliant job with their buy-to-let mortgage calculator, which should give you a great insight into how much you can borrow for a rental property. Remember though, individual circumstances are always different and that’s why it’s always worth speaking to an expert for tailored advice on your personal situation before jumping into it.
FAQs For Buy-to-Let Mortgages
There are so many questions to look at when applying for a buy-to-let mortgage and that’s why, with the frequently asked questions, we’re going to try and simplify them as much as possible:
The minimum deposit you can put down for an investment property is 20%. However, most of the time, you’re going to be looking at more like 25% to put down on your buy-to-let mortgage. If you can consult with an expert; however, they may be able to help you get that 80% LTV you desire.
There are certainly ways you can get a 100% loan-to-value (LTV) buy-to-let mortgage, but first of all, it’s extremely unheard of that lenders will allow for this to happen, and second of all, it’s usually not a very good financial decision to do so.
In simple terms, you can’t live in your buy-to-let property if it was purchased with a buy-to-let mortgage. This could be considered as mortgage fraud, as you were the one who said you wanted to rent it out. This could result in legal issues such as penalties, fines, and potentially even imprisonment.
