How much deposit do I need for a buy to let mortgage? [Audio]

A lot of people ask me about buy to let mortgages, and one of the biggest questions is ‘How much deposit do I need for a buy to let mortgage?’

Ideally you need a 25% deposit but some lenders have started to relax their criteria, so you could get away with 20% deposit. In fact, there is one lender that is now offering a 15% deposit product. However, the challenge with putting down a smaller deposit is that the rates aren’t as competitive and lenders are making the hoops you jump through in terms of approval more challenging.

Funnily enough, there is a difference between the inexperienced investor – i.e. someone with one or two buy to let properties, and the experienced investor – someone with 5, 10 or even more buy to let properties in their portfolio. (link to the other blog post)

In terms of mortgage products available, 15% is the lowest you can find and at the time of writing. The criteria for deals such as this isn’t particularly restrictive, it’s just more difficult to get the application approved and as you are putting down a small deposit your cash flow will be limited, so I would suggest to all new investors looking for a product like this to remember that somewhere down the line rates will increase and you need to be able to future proof your investment. You can get a deal at say 5.5% but with a 25% deposit you can get a good rate of around 3.5%. However, when your deal or fixed term ends, you could end up paying 6.5% or even more. If you can’t move to a new lender you could perhaps find yourself paying upwards of 7-8%. Therefore it’s important to do a future stress test and cash flow test to ensure that you will be able to afford 8%, if you can’t then I wouldn’t advise going ahead with the deal and try and find additional deposit to put down.

If you’re thinking about going into buy to let and you have the cash – it’s better to go for the deals where you put in as much as possible. If you can get away with 20% that’s fine but 25% deposit is better, rates are not only slightly better but you are also future proofing and although it’s good to put 30% down, it’s wise to keep some back for a future purchase of a buy to let property.

Although I’m a buy to let mortgage advisor, I’m primarily a property investor and that’s what puts me in the ideal position to offer my clients sound buy to let investment advice. I understand the pros and cons of the various strategies, and believe that it’s about looking at the bigger picture in order to build a successful portfolio. I can also advise on bridging finance, first time home buyers and re-mortgage. Give me a call for a no obligation chat or send me an email.