Buy-to-let done properly.

Buy-to-let is assessed on the property, not just on you

This is the thing that surprises people coming from a residential mortgage.

With your own home, a lender works out what you can afford from your income. With a buy-to-let, the starting point is usually the rent. The lender asks whether the rental income covers the mortgage payments with room to spare, at a rate higher than the one you will actually pay.

That calculation is the rental stress test, and it does more to decide your borrowing than your salary does.

It is also why two landlords with identical incomes can be offered very different amounts on the same property, and why a property that "obviously stacks up" sometimes does not, on paper, for a particular lender.

How the stress test works, in plain terms

A lender takes the expected monthly rent, then checks it against the mortgage payment calculated at a stressed interest rate rather than the real one. It wants the rent to exceed that figure by a margin.

Several things move the answer:

• The stressed rate the lender uses, which varies between lenders
• The margin they require, which can differ for a higher-rate taxpayer
• The type of deal. Longer fixed terms are sometimes assessed differently
• The rental figure, which comes from the lender's valuer rather than from you or your agent

Because every lender sets its own figures, the same property can produce meaningfully different maximum loans. Working out which lender's sums suit your property before applying is most of the job.

Personal name or limited company?

The question every landlord asks, and the one where you want your accountant doing the talking.

What I will say is this. Both routes are entirely normal. Company ownership has grown among landlords with several properties, largely for tax reasons that apply to some people and not others. Personal ownership remains common, particularly for one or two properties.

What differs on the mortgage side: the lender pool is different for each, the stress test can be applied differently, and company applications usually involve personal guarantees from the directors and a bit more paperwork.

What differs on the tax side is a question for your accountant, not for me. Moving properties between the two is not a free action either, so it is worth getting the structure right at the start. If you run a limited company already, the business owners and directors page covers how lenders look at company income.

Deposits, and what they change

Buy-to-let deposits are larger than residential ones. Beyond the headline requirement, a bigger deposit does two useful things: it widens the choice of lender, and it makes the stress test easier to pass, because you are borrowing less against the same rent.

Where the deposit comes from matters too. Savings, a remortgage of your own home, company funds or a gift all have paper trails, and lenders will want to see them.

What lenders check on the property

Landlords focus on the numbers. Lenders also look hard at the building:

• Flats above or next to commercial premises, particularly food outlets, narrow the field
• Unusual construction: concrete, timber frame, high-rise, former council
• Short leases. A lease with few years left can be a problem before anything else is considered
• Tenant type. Students, housing benefit, corporate lets and holiday lets all have their own criteria
• Multiple units on one title, which is specialist territory

None of these are necessarily a no. They simply change which lenders will look at it, which is why it helps to know before you commit to the purchase rather than after.

Portfolio landlords

Once you hold four or more mortgaged buy-to-lets, lenders generally treat you as a portfolio landlord, and the conversation changes. Expect them to look at the whole portfolio rather than just the property you are buying: the overall borrowing against overall value, the rent across all of it, and often a business plan and a property schedule.

It is more paperwork, and it rewards being organised. A landlord with a tidy spreadsheet and up-to-date figures has an easier time of it than one reconstructing six years of rent from memory.

Related property types

Some properties sit outside standard buy-to-let and need their own lenders:

• Houses in multiple occupation, where rooms are let individually. More rent, more regulation, fewer lenders. See HMO mortgages.
• Holiday lets and short-term rentals, assessed on seasonal income rather than a fixed monthly rent. See holiday let mortgages.
• Larger portfolios or more involved structures, where high net worth and complex income is the better starting point.

Where landlords get caught out

Buying first, financing second. Committing at auction or agreeing a purchase before checking the property is lendable is the expensive version of optimism.

Taking the agent's rental estimate as gospel. The lender's valuer sets the figure used in the calculation, and valuers are conservative.

Forgetting the costs between tenants. Voids, repairs, agent fees and the annual safety checks all come out of the same rent the lender has counted once.

Letting consent slip. Renting out a home on a residential mortgage without the lender's agreement is a problem you do not want. Consent to let is usually straightforward to ask for.

Assuming regulation does not apply. Licensing, safety certificates and deposit protection are not optional, and they vary by council.