The quantity of buy-to-let mortgages hit a 12-year high recently, with competition fuelling cheaper rates – but do you want a lot of money to purchase buy-to-let or perhaps is it easy to buy with a small deposit?
Here, we analyse the mortgage options available to existing and first-time landlords with small deposits, and offer advice on comparing buy-to-let deals.
Buy-to-let mortgages for buyers with small deposits
Data from Moneyfacts shows that the amount of buy-to-let mortgages increased by nearly 400 last year, meaning nowadays there are more than 2,000 deals available on the market.
Our analysis shows, however, that while there’s now more option for real estate investors, you’ll still need a deposit with a minimum of 20% to obtain a great deal.
The buy-to-let mortgage rate you’ll have the ability to access depends on two key things: just how much deposit place down, and whether you’re already a landlord.
As the table below shows, while it’s possible to obtain a loan with a 15% deposit, not many lenders offer these items – and first-time buyers have significantly fewer options than existing landlords.
| Maximum LTV | No. of lenders (existing landlords) | No. of lenders (first-time buyers) |
| 75% | 59 | 18 |
| 80% | 21 | 5 |
| 85% | 3 | 0 |
Should you receive an 85% buy-to-let mortgage?
Just three lenders – Kensington, Vida and Kent Reliance – offer buy-to-let mortgages for existing landlords with a 15% deposit.
Unfortunately, the rates on these products aren’t particularly competitive. At this time, the least expensive introductory rate available at 85% LTV is 4.39% for a two-year fixed deal.
And with 18 more lenders joining the market at 80% LTV, existing landlords who can put up an additional 5% could get yourself a rate as little as 3.15%.
Which lenders offer buy-to-let mortgages for first-time buyers?
If you are considering investing like a first-time buyer, you’ll require a deposit of 25% if you wish to convey more than a number of mortgages to choose from.
Only five lenders offer deals to first-time buyers at 80% LTV, with rates starting at 3.89%. This figure drops to just 1.88% should you borrow at 75% LTV.
| Maximum LTV | Lenders offering BTL deals for first-time buyers |
| 75% | Below lenders plus Bank of China, Barclays, Birmingham Midshires, Danske, Gatehouse, HSBC, Melton Mowbray, Mercantile Trust, Natwest, RBS, Sainsbury's, Skipton, Ulster. |
| 80% | Clydesdale, Landbay, Molo, Vida Homeloans, Yorkshire Bank |
Rates on buy-to-let mortgages for landlords and first-time buyers
So, we’ve established that existing landlords have more choice of lenders than first-time buyers, but does this mean cheaper rates?
The chart below shows the space in cost between the cheapest initial rate for existing landlords on two and five-year fixes, compared to those available to first-time buyers.
As you can observe, first-time buyers borrowing at 75% LTV are able to access similar or identical rates to people available to existing landlords.
25% deposit (75% loan-to-value)
Two-year fix
| Lender | Initial rate | Revert rate | APRC | Fees | Cashback | |
| Existing landlords | Sainsbury’s | 1.70% | 5.24% | 4.9% | lb1,995 | lb250 |
| First-time buyers | Birmingham Midshires | 1.88% | 5.09% | 4.7% | lb1,995 | None |
Five-year fix
| Lender | Initial rate | Revert rate | APRC | Fees | Cashback | |
| Existing landlords | Birmingham Midshires | 2.36% | 5.09% | 4.3% | lb1,995 | None |
| First-time buyers | Birmingham Midshires | 2.36% | 5.09% | 4.3% | lb1,995 | None |
20% deposit (80% loan-to-value)
Two-year fix
| Lender | Initial rate | Revert rate | APRC | Fees | Cashback | |
| Existing landlords | Ipswich BS | 3.15%* | 5.74% | 5.5% | lb900 + lb199 | None |
| First-time buyers | Molo Finance | 3.89% | 5.1% | 4.9% | lb450 | None |
*2.95% if below lb150,000
Five-year fix
| Lender | Initial rate | Revert rate | APRC | Fees | Cashback | |
| Existing landlords | Ipswich BS | 3.75% | 5.74% | 5% | lb900 + lb199 | None |
| First-time buyers | Molo Finance | 4.19% | 5.1% | 4.8% | lb450 | None |
All mortgage data from Moneyfacts. 20 March.
Choosing a buy-to-let mortgage: key tips
If you’re considering getting a buy-to-let mortgage, these three tips will stand you in good stead when you compare deals.
- Watch out for top product fees: Buy-to-let mortgages tend to have higher up-front fees than normal residential loans, along with a high fee can eliminate a few of the advantages of a minimal initial rate. As you can tell within the tables above, the best-rate 75% deals come with up-front fees as high as lb1,995.
- Be aware of early repayment charges: Longer-term fixes have become more popular with both residential and buy-to-let borrowers, however, many come with expensive early repayment charges (ERCs). Some mortgages charge ERCs on the sliding scale starting as high as 5% in the newbie.
- Consider utilizing a large financial company: Buy-to-let mortgages are specialist deals, meaning many products are only accessible through intermediaries. With this thought, it can benefit to obtain advice from a whole-of-market large financial company.
Where are landlords taking out buy-to-let mortgages?
There’s no hiding the fact that it’s an uncertain time for you to purchase property, having a swathe of buy-to-let reforms eating into landlord profits.
This, coupled with tighter lending criteria, has led to some claims that buy-to-let has become a cash buyer’s game.
New research by Hamptons International suggests otherwise, however.
The agency’s latest report shows that while the percentage of cash buyers working in london has grown by 15% within the space of the year, other regions have actually seen an increase in the proportion of mortgaged buy-to-let investors.
| Region | Landlords purchasing with a mortgage | Year-on-year change |
| East of England | 54% | +4% |
| South East of England | 53% | +6% |
| Scotland | 53% | +7% |
| London | 52% | -15% |
| Midlands | 48% | +2% |
| Wales | 43% | +2% |
| South West of England | 43% | +5% |
| North of England | 37% | +1% |
