Buy-to-let vs residential mortgage: What's the difference?

What is a buy-to-let mortgage?

A buy-to-let mortgage is a type of mortgage designed for people who want to buy a property and rent it out, rather than live in it themselves. These mortgages are mainly used by landlords and property investors. A residential mortgage, however, is designed for people who are buying a home to live in. 

Read more: What is mortgage affordability and how does it work?

How do buy-to-let mortgages work?

One of the biggest differences between buy-to-let mortgages and residential mortgages is how lenders assess your affordability. Buy-to-let mortgage lenders usually base how much you can borrow on the potential rental income from the property, rather than just your salary. In most cases, lenders want your rental income to cover your mortgage repayments and leave money leftover for expenses and profit. Lenders also consider how much demand there is for rental homes in the area.

Your income is less important when getting a buy-to-let mortgage than it is when applying for a residential mortgage, but even so, most lenders will have minimum income requirements.

What is the rental income isn’t high enough?

If your rental income isn’t high enough to meet the lender’s expectations, you may be able to use a method called top slicing to make up the shortfall. Top slicing lets you use some of your personal income to boost your borrowing amount. Some lenders are more flexible with top slicing than others, so it’s worth speaking to an expert, trusted mortgage broker to find the best deal for your situation.

Are buy-to-let mortgages interest-only?

Many buy-to-let mortgages are interest-only, meaning you only pay the interest on the loan each month, rather than the capital. At the end of the mortgage term, you’ll need to repay the loan itself, often by selling the property or other assets.

But you can also choose a repayment buy-to-let mortgage. These are less common among landlords because the monthly repayments are higher, but you’ll own the property outright at the end of the mortgage term.

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What deposit do I need for a buy-to-let?

Most lenders require at least a 25% deposit for a buy-to-let mortgage, which is higher than the 5 to 10% deposit often needed for residential properties.

Are buy-to-let mortgages more expensive?

Buy-to-let mortgages usually have higher interest rates and require larger deposits, which can make them more expensive than residential mortgages. However, if you choose an interest-only buy-to-let mortgage rather than a repayment buy-to-let mortgage, the monthly repayments will usually be lower. Plus, as you don’t need to purchase a buy to let where you live, you could purchase a property in a cheaper area with lower house prices.

Who can get a buy-to-let mortgage?

Anyone can apply for a buy-to-let, but you’ll need to meet certain lender criteria in order to be approved. Plus, if you apply for a buy-to-let mortgage without knowing if you meet that lender’s affordability and eligibility criteria, you may be rejected. Working with a mortgage broker can help you only apply for deals where you’re likely be approved. Typically to be approved for a buy-to-let, you’ll need to meet the below criteria at a minimum:

• Being aged 21 or over (some lenders have higher age limits)
• Earning a minimum income (typically £25,000+)
• Having a good credit history
• Having a sufficient deposit

Some lenders will only approve buy-to-let applications from people who already own a home.

Can first-time buyers get a buy-to-let?

Yes, but it can be hard to get approved as you’ll usually need a higher deposit than a residential mortgage, typically 25% of the purchase price. You also won’t benefit from first-time buyer stamp duty relief, meaning you’ll pay a higher percentage of Stamp Duty when you’re buying an additional property. This is known as the Stamp Duty surcharge. In England, Wales and Northern Ireland, this is set at a minimum of 5%, and a minimum of 8% in Scotland.

It’s also worth noting that having a buy-to-let mortgage could impact your affordability if you later apply for a residential mortgage. If you’re saving for your first home to live in using a Lifetime ISA, you can’t use your Lifetime ISA to buy a buy-to-let property. If you withdraw the money for this purpose, you’ll lose your bonus and pay a 25% withdrawal penalty. Plus, if you purchase a residential property before buying your first home to live in yourself, you may no longer qualify as a first-time home buyer.

Learn more: Should I rent out my first home?

Do you need a buy-to-let mortgage to rent?

If you’re renting out a property and you don’t own it outright, you need to have a buy-to-let mortgage. Using a residential mortgage without your lender’s consent could breach your agreement.

If you want to stay in the property and rent out a room in your home to a lodger, you can usually do this without changing your mortgage. To be on the safe side, contact your lender before taking in a lodger to find out where you stand.

Can I change my mortgage to buy-to-let?

Yes, but you’ll need your lender’s approval, and you’ll have to meet their buy-to-let criteria. If you want to switch from a residential mortgage to a buy-to-let mortgage, you’ll usually need what’s known as a Let to Buy mortgage. This involves two mortgages - one for the property you want to rent out, and the other for a new property you want to buy and live in.

You might need a Let to Buy mortgage if you want to buy a new home, move location or upsize, but are struggling to find a buyer for your current property or want to keep hold of it. This can mean you become an "accidental landlord" - i.e you weren't planning on being a landlord originally, but become one through your circumstances changing.

Can you put a family member in a buy-to-let property?

Yes, but you’ll usually need a regulated family buy-to-let mortgage. These are treated differently from standard buy-to-let loans because the tenant is a relative. Find out more here.

What are the disadvantages of a buy-to-let mortgage?

Buy-to-let can be a great investment, but it’s not without its challenges. Here are the main drawbacks to consider:

• Larger deposit required: You'll typically need at least 25%, which is higher than the deposit required for residential mortgages.
• Higher interest rates: Buy-to-let mortgage rates tend to be more expensive, meaning your monthly repayments could be higher than they would be with a residential mortgage
• Different lending criteria: Lenders assess your rental income projections as well as your personal income, and may require you to earn £25,000+.
• Less tax relief: You’ll pay income tax on your rental income and potentially capital gains tax when you sell. Recent tax rule changes have reduced relief for landlords.
• Additional costs: Landlord insurance, property maintenance, letting agent fees, legal costs, and void periods all eat into your profits.

LISA and first-time buyer perks don't apply: If you’re a first-time buyer using a Lifetime ISA, you can’t put it towards a buy-to-let property.

Is buy-to-let worth it in 2026 in the UK?

It depends. Buy-to-let can be a great investment, offering both regular rental income and long-term property value growth. But there will be additional costs to budget for, such as letting agent fees, landlord insurance and repair costs. Plus, the tax rules around relief for landlords have changed recently, which may make it less profitable to enter the buy-to-let market.

You can no longer deduct any finance costs from your rental income to work out your taxable profit. Instead, you’ll receive a 20% basic rate tax credit on your mortgage interest payments, regardless of whether you are a basic, higher, or additional rate taxpayer. This significantly increases the tax bill for higher and additional rate taxpayers.

You’ll also pay income tax on your rental income. From April 2027, specific income tax rates on property income will increase by 2% across all tax bands (e.g., basic rate to 22%, higher rate to 42%). From April 2026, it will also become mandatory for landlords with annual gross property income over £50,000 to use digital record-keeping and provide quarterly updates to HMRC.

You may also have to pay Capital Gains Tax when you sell the property. In April 2024, the tax-free annual allowance for CGT was reduced to £3,000 for individuals, and the higher rate of CGT on the sale of residential property was reduced from 28% to 24% in April 2024.

If you’re wondering if buy-to-let is worth it for you, it may be a good idea to speak to a financial advisor first. If you’d like help seeing what your mortgage options are for buy-to-lets, talk to Tembo. Voted the UK’s Best Mortgage Broker four years in a row, with access to +100 lenders across the market, we can help you find all the ways you could break into the rental market.