Buy-to-Let Mortgage & Yield Calculator (UK)

Buy-to-Let Investment Guide

What's the key thing to understand about Yields and ICR Explained?

Gross rental yield = (annual rent / property price) × 100. Quick benchmark only. UK averages: 4-6% gross yield. Higher (7%+) typical in low-price northern England areas. Lower (3-5%) in London and South-East. Net yield = (annual rent − all costs) / property price × 100. More accurate. Subtracts: mortgage interest, agent fees, insurance, maintenance, vacancy losses. ICR (Interest Coverage Ratio): lender stress test. Rent ÷ mortgage interest at stressed rate. Buy-to-let mortgages typically require rental income to cover 125-145% of the mortgage interest at a stressed rate (often 5.5-7%), not the actual pay rate, which limits how much can be borrowed relative to the achievable rent.

What's the key thing to understand about True Costs of Letting?

Often overlooked costs: void periods. Even with full-time letting, expect 3-8 weeks unoccupied per year between tenants. Maintenance reserves: 1% of property value per year minimum (£250k house = £2,500/year). Big-ticket items (new boiler £2,500, new bathroom £5,000, roof repairs £3,000) come along every few years. Letting agent: full management 8-12% of rent. Plus tenant find fee (often 1 month's rent additional). Online-only agents: cheaper (£100-200 flat fees) but less hands-on. Landlord insurance (different from standard home insurance, and compulsory for most BTL mortgages): typically £150-300/year.

What's the key thing to understand about Tax Treatment (Major Changes Since 2017)?

Section 24 (since 2017): mortgage interest is NO LONGER deductible from rental income. Instead, a 20% tax credit is given. Massive impact on higher-rate taxpayer landlords — their effective tax rate on a leveraged property can exceed 100% of profit. For higher-rate taxpayers (£50,270+): only basic-rate relief on mortgage interest = 20%. Income tax then due at 40% on rental income BEFORE deducting interest. Net result: higher-rate landlord with £15k rent and £10k interest pays tax of £4k vs £2k previously under the old rules — a significant increase in effective tax rate purely from the change in how interest is treated.

Is BTL Still Worth It in 2026?

Honest assessment in current market: cash-flow positive BTL increasingly difficult with mortgage rates 5%+ and Section 24. Many leveraged BTL properties now break-even or negative cashflow. Better suited to: cash-rich investors (no mortgage). Limited company structures (especially for higher-rate taxpayers). Long-term capital growth bet rather than income play. Areas where rental yields exceed mortgage rates by clear margin. Worse for: highly-leveraged investors (75%+ LTV). Higher-rate individual landlords in high-mortgage, low-yield areas are the group most squeezed by current tax rules — running the numbers through a limited company structure is worth exploring if this describes your position.

Why Lenders Size Buy-to-Let Mortgages Around Rental Income, Not Just Personal Income

Unlike a residential mortgage, which is sized primarily against the borrower's personal income and outgoings, buy-to-let mortgage lending is sized mainly against the property's expected rental income, using an Interest Coverage Ratio (ICR) test that typically requires rental income to cover somewhere around 125-145% of the mortgage interest payment, with higher requirements common for higher-rate taxpayers. This means two borrowers with identical deposits and personal incomes can be offered very different maximum loan amounts on the same property if their tax status differs, since the stress test is calculated at a notional interest rate that can be well above the actual pay rate, specifically to ensure affordability holds even if rates rise.

Why Buy-to-Let Deposits and Rates Run Higher Than Residential Mortgages

Buy-to-let mortgages generally require a larger minimum deposit than owner-occupier mortgages — commonly 25% or more of the property value versus as little as 5-10% for some residential deals — and usually carry higher interest rates, reflecting the lender's higher perceived risk from a landlord's reliance on tenants and rental income rather than the borrower's own salary to service the debt. Most buy-to-let mortgages are also interest-only by default rather than repayment, meaning the monthly payment covers only interest with the full capital balance due at the end of the term, which keeps monthly cash flow lower for landlords but requires a clear repayment strategy — sale of the property, remortgaging, or another source of funds — to be in place before that term ends.

Limited Company vs Personal Name Buy-to-Let: Tax and Mortgage Differences

Since the tapering away of mortgage interest relief for individual landlords, many investors have weighed buying through a limited company instead of their own name, and the comparison involves more than just tax treatment. A company pays corporation tax on rental profits and can generally still deduct mortgage interest as a business expense in full, avoiding the restriction that applies to individual landlords, which can be a meaningful advantage for higher-rate taxpayers with significant borrowing. However, extracting profit from the company, whether as salary, dividends, or on an eventual sale, typically triggers a further layer of personal tax, so the overall efficiency depends on whether profits are reinvested within the company or drawn out regularly. Limited company buy-to-let mortgages also tend to come with a smaller pool of lenders, somewhat higher interest rates, and more involved underwriting than personal-name mortgages, partly reflecting the more complex legal structure and sometimes a personal guarantee requirement from directors. Moving an existing personally-owned property into a company structure generally counts as a sale and a repurchase for tax purposes, potentially triggering stamp duty and capital gains tax on the transfer, which is why the decision is usually made before buying rather than retrofitted onto an existing portfolio.

Worked Example: Passing the ICR Stress Test

A landlord wants a £180,000 interest-only buy-to-let mortgage on a property renting for £1,000/month (£12,000/year). Lenders typically don't stress-test at the actual pay rate; instead they apply a notional stress rate, often in the region of 5.5-7% for personal-name landlords, higher for higher-rate taxpayers to reflect the Section 24 tax treatment. At a 6.5% stress rate, the notional annual interest on £180,000 is £11,700. A lender requiring 145% interest cover (a common figure for higher-rate taxpayers) needs rental income of at least 1.45 × £11,700 = £16,965/year, or about £1,414/month — well above this property's actual £1,000/month rent, so the loan as requested would likely fail the stress test. To pass, the landlord would need either a bigger deposit (reducing the loan amount and so the notional interest), a lower stress rate (sometimes available on longer fixed-rate deals), or a higher-rent property. This mismatch between "can I afford the real monthly payment" and "does it pass the lender's stress test" is one of the most common surprises for first-time landlords.

Typical ICR Requirements by Landlord Profile

These percentages and stress rates are set by individual lenders and move with the interest rate environment and regulatory guidance, so treat them as indicative ranges to sanity-check a deal rather than numbers to rely on for a real application — always get a current quote and affordability assessment from the lender or a mortgage broker.