How much deposit do you need for a buy-to-let?
Our Senior Property Investment and Market Advisor, Rhys Owen, points out the minimum deposit most mortgage lenders will require from a landlord when they are buying a buy-to-let property.
Estimated reading time: 3 minutes.
Property has long been one of the most well-known safest and most lucrative investments available over the long-term. That’s not to say that property investment can’t go sour, because if an investor chooses the wrong property, a bad location, neglects their duties, or finds themselves with nightmare tenants, it can certainly sting the pocket or they could even find themselves on the wrong side of the law.
With that said, carrying out due diligence, keeping up to date with the market and leaning on the knowledge and expertise of experienced property professionals should yield some great profits over the long term far more often than not.
Now, if you’re new to the idea of property investment, you’ll quickly realise there is a lot to learn. Being a landlord isn’t for everyone, but if you think you could make a real good go of it, a buy-to-let may be a great way to generate an ongoing income, slowly build up wealth and diversify your financial portfolio.
Unless you’re in the very fortunate position of being cash-rich and looking to purchase a buy-to-let property outright, you’ll need to find yourself a mortgage for the property just like you would with a residential purchase. This raises the very first question for the budding landlord - how much deposit do I need to get a buy-to-let mortgage?
Read: Buy to let jargon explained - an A to Z
Deposits for a buy-to-let mortgage
Generally speaking, most lenders are going to require a deposit of at least 25% before even considering a buy-to-let mortgage application. This is one of the big differences compared to residential mortgages that can be obtained with much lower deposits.
With that said, a 25% deposit for a buy-to-let mortgage isn’t set in stone, it’s just the general figure you’ll need if you want to be able to consider the widest range of lenders as most will require this deposit as a minimum. For example, let’s your deposit is 15%, a broker may still find a lender who’s willing to approve a buy-to-let mortgage for you, but you’d be ruling out a large bulk of lenders and their better rate mortgage products that require a 25% deposit.
As with residential mortgages, larger deposits open up the door to the most preferential rates, so if you can afford to put down a deposit that’s above 25% it may well be worth discussing that with your broker and a financial advisor.
Read: Guide to investing in the property market and becoming a landlord
Why do lenders require larger deposits for a buy-to-let mortgage?
Lenders require a larger deposit for their buy-to-let mortgages due to the extra inherent risk they’re taking on. Mortgage lenders view buy-to-let mortgages in a riskier light than they do residential mortgages for many reasons, such as the fact it’s an additional expense that you the landlord will owe alongside other outgoings (even though the income from a tenant should cover the mortgage payments and beyond, there will still be void periods).
Lenders are trusting landlords to operate sensibly and profitably so that they can comfortably repay the outstanding mortgage balance over time, and many outside factors are at play including the type of tenants in the property, the wider state of the economy etc. and this risk is all reflected in the requirement of higher deposits and the offering of higher rates on buy-to-let mortgage products.
Read: Best areas in Cardiff for a landlord to invest
Here at CPS Homes, our team of letting experts have the knowledge required to help any landlord with their property investment. From sourcing the perfect property to buy and rent out, finding suitable tenants that can occupy the property, to full management of the property - we can help take the stress out of being a landlord. Why not get in touch to find out more about our property services and how we can help? Call us on 02920 668585, e-mail enquiries@cpshomes.co.uk or pop into one of our three Cardiff branches for a chat.
