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80% LTV Buy To Let Mortgages

Want to maximise your property investment potential with a buy-to-let mortgage at 80% LTV? Read on as we explain all.
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Buy-to-let mortgages are a popular financing option for those looking to invest in rental properties. 

80% loan-to-value (LTV) ratio is an option for buy-to-let mortgages that are available on the market. This means that a lender will loan up to 80% of the property’s value, and the borrower will need to provide the remaining 20% as a deposit.

That said, an 80% LTV buy-to-let mortgage offers several benefits, primarily this is lower deposit requirements which allow the investor to purchase a buy-to-let property which wouldn’t have been possible were a higher deposit needed.

However, it’s important to note that higher LTV ratios also come with higher interest rates and stricter lending criteria. 

As such, it’s crucial for borrowers to conduct thorough research and compare offers from different lenders before committing to a buy-to-let mortgage.

So, let’s explore the ins and outs of 80 LTV buy to let mortgages and provide useful tips for potential borrowers.

What Is an 80% LTV Buy-Let Mortgage?

An 80 LTV buy to let mortgage refers to a type of mortgage that allows you to borrow up to 80% of the property value. Here’s an image that simplifies the concept.

Loan to Value Ratio

LTV stands for Loan To Value ratio, which is determined by dividing the loan amount by the property value. For example, if your loan amount is 80% of the property value, your LTV is 80%.

Compared to traditional mortgages, BTL mortgage 80 LTV is considered riskier by many lenders. Hence, most of them limit the LTV to between 60 and 75%.

Accordingly, to find a reliable lender that offers an 80 LTV buy to let mortgage, you may have to consult a specialised mortgage advisor

Who Is Eligible To Get A Buy To Let Mortgage 80% LTV?

Experienced buy-to-let landlords with a history of timely repaid loans are more likely to be offered 80% mortgages compared to first-time landlords.

Nonetheless, several factors determine whether first-time buyers can qualify for an 80% BTL mortgage in certain situations.

That said, to apply for any buy-to-let finance, lenders usually have specific requirements that must be met.

Although these requirements vary from lender to lender, it’s still possible to access buy-to-let mortgages from other providers, even if you don’t meet all the eligibility criteria.

Typically, to increase your chances of qualifying for a buy-to-let mortgage, you should meet the following requirements:

  • Be less than 70 years old when the mortgage term ends
  • Have a good credit history
  • Earn at least £25,000 per year
  • Be over 25 years old
  • Own your own home
Buy to let mortgage criteria

However, if you fail to meet the aforementioned criteria, a mortgage advisor can assist you in identifying the lenders and products that can help you with financing.

What Are The Interest Rates On 80% LTV Buy-To-Let Mortgages?

The interest rate on your buy-to-let mortgage is determined by various factors, such as the mortgage term, type of mortgage, loan amount, and Loan To Value (LTV) ratio. 

If you opt for a fixed-rate buy-to-let mortgage, your interest rate will remain fixed usually for the initial 2-5 years of the mortgage term, offering more stability in your repayments. After the fixed-rate period, the mortgage typically reverts to a standard variable rate. 

A tracker mortgage has interest rates set at a predetermined percentage above the Bank of England Base Rate or equivalent, ensuring that your interest payments remain consistent with inflation.

With a discounted rate mortgage, you will pay a reduced interest rate for a set period, usually the first 2-5 years of the mortgage term. This makes borrowing more affordable in the short term. Afterwards, the interest rate normally reverts to a standard variable rate.

Keep in mind that most lenders usually charge higher interest rates on mortgages with a higher LTV, including 80% LTV mortgages. Hence, applying for a lower LTV mortgage could result in a better interest rate.

Benefits Of Buy-To-Let Mortgage At 80% LTV

To obtain a buy-to-let mortgage, it is recommended to work with an experienced broker to compare deals since a 20% deposit is on the lower side. Plus, opting for a fixed-rate mortgage can provide stability with a consistent interest rate and manageable monthly payments.

However, it’s crucial to assess the advantages and disadvantages of a tracked rate, which could be more cost-effective in certain circumstances.

That said, choosing a five-year term is often the cheaper option in the current climate (2023), as lenders are charging higher for shorter fixed terms due to uncertainties over the market, a desire for customer retention and future interest rates.

Moreover, a higher deposit, such as 25%, can lead to more favourable interest rates and increase the chances of approval.

Relation Between Your Tax Bracket And 80 LTV Buy-To-Let Mortgage

Disclaimer: When it comes to taxes, this is just general advice and not to be relied upon as fact. When it comes to tax everyone’s position and circumstances are different and the rules are changing all the time. Only by seeking advice of a qualified tax professional can you be certain you are complying with all the relevant tax rules & regulations.

When seeking an interest-only buy-to-let mortgage, your tax bracket as a landlord is an important consideration for the lender to determine whether you can afford to make payments. Using an 80% loan-to-value mortgage calculator, you may be asked about your tax bracket. 

If you’re a basic rate taxpayer, you must pay 20% of your rental income as tax.

In that case, the lender typically requires a projected rental income of 125% of the mortgage interest to ensure affordability. For instance, if your monthly mortgage payment is £800, you need to earn £1,000 in rent to qualify. 

However, higher-rate taxpayers have a lower profit due to their higher taxes, so lenders require a higher rental income of 145% or even 160% of the mortgage interest.

Plus, most lenders will conduct a stress test by calculating the monthly interest at a nominal rate of 5% and applying the same affordability analysis to ensure responsible lending practices.

What Income Do I Need For A Buy-To-Let Mortgage 80% LTV Interest Only?

Although buy-to-let mortgages based on personal income of the applicant are not widely known, they can provide an effective solution if you cannot meet the affordability metrics based on your projected rental income, this is called ‘Top Slicing’. 

With some buy-to-let mortgages, lenders consider your overall income rather than solely relying on the earnings generated by the property you want to mortgage. This approach can be beneficial in the following situations: 

  • When a higher-value property doesn’t currently generate sufficient rental income to pass a stress test for an 80% loan-to-value mortgage
  • If you expect the rental income to increase soon
  • If you are investing in lower rental yield properties in up-and-coming areas that do not offer the minimum return to cover the interest by 125%

Stress testing can make an otherwise affordable loan less so lenders may reject it.

Lenders who stress test at pay rate offer stronger affordability so could be a viable solution, speak to a mortgage broker around this topic. 

Can You Get 80 LTV Buy-to-let Interest Only Mortgages As A Higher Rate Taxpayer?

Qualifying for a higher loan-to-value on an 80% buy-to-let mortgage can be more difficult for higher-rate taxpayers, but it’s not impossible.

Specialist lenders may consider applicants outside the typical criteria and evaluate each application on its own merit. 

Another option although unlikely is to apply to a lender who assesses affordability based on your income alongside rental revenue generated by the property.

Or, you can consider top-slicing as mentioned above where you supplement your income with other earnings to demonstrate that you can afford the repayments. 

The aim is to show that you can cover the interest on your 80% LTV mortgage, even if you don’t meet the higher interest cover ratio.

Lenders have varying policies on top-slicing, but generally, if you meet the minimum 125% interest cover, you can add your income from other sources for the affordability assessment. 

Additionally, with many lenders you’ll need to earn a minimum amount of £25,000 per year, but this amount may vary depending on the lender, in addition to your rental income.

You may also need to meet more rigorous basic criteria, such as being below retirement age and having a minimum number of years of experience.

Are The Terms On A Buy To Let Mortgage 80 LTV Different from A Residential Mortgage?

While buy-to-let mortgages are similar to residential mortgages, there are notable differences in how they are assessed and repaid.

Residential mortgages are typically repaid on a capital and interest basis, with monthly payments consisting of both. This reduces the outstanding balance over time. 

However, buy-to-let mortgages are interest-only primarily, meaning that the borrower only has to pay the interest amount per month.

This requires the borrower to demonstrate an exit strategy for repaying the original amount borrowed at the end of the term. Borrowers can do so by selling or remortgaging the investment property alongside other potential exits.

Continue Reading: Buy-To-Let Vs Residential Mortgage

Can You Switch from A Residential Mortgage To A Buy-To-Let Mortgage 80 LTV Interest Only?

If you want to turn your residential property into a rental home, you must be permitted to do so by your mortgage lender. Not informing them about the change could result in a violation of your mortgage agreement.

Additionally, it is not possible to use a homeowner loan to purchase a buy-to-let property. It all depends on the lender, and some may allow you to let your property while others may not, primarily because they do not offer buy-to-let mortgages.  

To Sum Up

Overall, 80 LTV buy to let mortgages can be an attractive option for investors looking to purchase rental properties with a smaller deposit.

However, the eligibility criteria and affordability assessment can vary between lenders, with factors such as rental income and tax bracket impacting the amount you can borrow. 

Hence, it is important to consider different types of BTL mortgages and features allowed by the lender such as pay-rate mortgages and top-slicing. That will help you identify the best solution for your financial situation.

Consequently, seeking the advice of a qualified mortgage broker or financial advisor is also recommended to navigate the complex process of securing an 80 LTV buy-to-let mortgage.

**A buy to let mortgage will be secured against your property.

Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.

CeMAP & CERER Qualified Mortgage Adviser

I am CeMAP & CERER qualified mortgage adviser and have helped a number of clients realise their dreams when they thought it would not be possible. I’m skilled at getting mortgages sorted for people with a history of missed payments, CCJs, defaults, debt management programmes, IVAs and bankruptcies.

Mortgage & Protection Advisor | 03337892035

I am CeMAP (Certificate in Mortgage Advice and Practice) qualified mortgage adviser with a strong background in Finance. I specialise in providing expert advice on a range of mortgage products, including first-time buyers, remortgages, buy-to-let mortgages and bad credit mortgages.

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