How Much Deposit Do You Need for a Buy-to-Let Mortgage?

It is the first question on almost every call I take, usually within ten minutes: how much deposit do I actually need for a buy-to-let mortgage?

So let me give you the straight answer, then the parts most articles skip: why the deposit is only half the number, and what lenders are really checking when they look at you.

The short answer: plan for 25%

Most buy-to-let lenders want a deposit of around 25% of the purchase price. A handful will go to 20%, though the rates usually make you wince. Put down 40% and you unlock the best pricing on the market.

So on a £120,000 house, the kind of solid, lettable property we buy every month in Leeds and Sheffield, you are looking at roughly £30,000 as your deposit at 25%.

If someone promises you a buy-to-let mortgage with 10% down, be careful. That is residential-mortgage territory, and buy-to-let is a different animal.

Why lenders want more than they do for your home

When you buy your own home, the lender is betting on your salary. When you buy an investment property, they are betting on the rent, and rent comes with risks your payslip does not: empty months, non-paying tenants, boilers that fail in December.

So they protect themselves in two ways. The bigger deposit is the first. The second is what is called a rental stress test. In plain English, most lenders want the expected rent to comfortably exceed the mortgage payment, typically by 125% to 145%, and they test it against a higher interest rate than the one you will actually pay. It is their way of asking: if things get worse, does this property still wash its face?

This is why the properties we put in front of clients are chosen on rent first. A pretty house with weak rent fails the stress test and fails you.

The deposit is not the whole number

Here is the part I wish more people were told before they started. Anyone who says the deposit is the only cash you need is selling something.

On top of your deposit, budget for:

• Stamp duty. Investment properties pay a surcharge on top of standard rates. At the time of writing, on a £120,000 purchase in England, that bill is £6,000 on its own. Always check the current rates before you commit.
• Legal fees and surveys. Unavoidable, and worth doing properly.
• Refurbishment and furniture. A property that is merely fine attracts tenants who are merely fine. We refurbish to a standard people want to stay in, because tenants who stay are what make the ten-year numbers work.
• A buffer. Voids happen. Repairs happen. The investors who sleep well are the ones who kept some powder dry.

To see how it adds up, the default example in our investment calculator uses that same £120,000 house with a £30,000 deposit. By the time stamp duty, refurbishment, furniture, legal work and sourcing are counted, the total cash in is nearer £60,000. The deposit is the headline; the total cash in is the truth. If you are weighing this against other homes for a lump sum, we set out deciding where £100k works hardest.

Getting the mortgage itself

The deposit is your ticket in; the mortgage is its own subject, from how lenders size the loan on the rent to the criteria they check on you. We have covered all of it, stress tests, criteria and the step-by-step process, in our buy-to-let mortgages guide. The advice that belongs here too: speak to a broker early, because criteria vary wildly between lenders, and a decision in principle costs nothing while telling you your true budget.

And if coordinating brokers, solicitors and surveyors sounds like a second job, that coordination is literally what we do. Our end-to-end process manages the professionals a purchase needs, and you approve the decisions.

What I would tell you if you were family

I built this company after watching my parents lose their income to illness, so I tend to give the cautious version of every answer. Here it is.

Do not stretch to your last pound for the deposit. A deal that only works if nothing goes wrong is not a deal, it is a hope. Buy the solid house on the ordinary street with rent that covers the mortgage with room to spare, keep a buffer, and let time do the heavy lifting. That is the entire strategy behind every property we have sourced since 2016, and it is why our 5% gross yield guarantee has never been called on. The lowest we have delivered is 6.2%.

Under-promise, over-deliver. It works in mortgages too.