Buy-to-Let Mortgage Calculator: Is Your Investment Profitable?
A buy-to-let mortgage is different from a residential mortgage. You're not borrowing to live in the property—you're buying it as an investment, renting it to tenants, and using their rental income (ideally) to cover your mortgage and make a profit. This guide explains how to calculate whether a buy-to-let investment is profitable, using real-world numbers and our buy-to-let mortgage calculator to work through the maths.
What Is a Buy-to-Let Mortgage?
A buy-to-let mortgage is a loan secured against a rental property. The key differences from a residential mortgage:
Interest-only is the norm. Most buy-to-let mortgages are interest-only, meaning you pay interest each month but the capital stays the same. This keeps monthly payments lower, improving your cash flow. On a £200,000 mortgage at 5.2% interest-only, you pay £867/month. On the same mortgage over 25 years repayment, you'd pay £1,223/month — that's £356 more per month that comes straight out of your profit.
Affordability rules are stricter. Residential lenders check whether you can afford the mortgage on your salary. Buy-to-let lenders check whether the rental income covers the mortgage. A typical stress test: they assume interest rates are 1–2% higher than your actual rate, then check that the monthly rent covers 125% of the calculated payment. On £200,000 at 5.2% interest-only, that's £867/month. At 7.2% (a +2% stress test), it becomes £1,200/month, so lenders want to see at least £1,500/month in rent. If your property only rents for £1,200, you won't qualify, even if you earn £100,000.
Deposits are usually larger. Residential lenders will go to 95% LTV (5% deposit). Buy-to-let lenders typically cap at 75–80% LTV, meaning you need 20–25% deposit. On a £200,000 property, that's £40,000–£50,000, not £10,000. Understanding how LTV ratio affects your mortgage rate is crucial—a 65% LTV might be 0.4% cheaper than 75% LTV, saving you thousands over the life of the loan.
Landlord-specific costs matter. Mortgage interest is tax-deductible, but there are many other expenses: buildings insurance, maintenance, council tax or business rates, letting agent fees, and void periods when the property sits empty. Check out our guide on what counts as income to understand how lenders assess your borrowing capacity.
How to Calculate Rental Yield and Cash Flow
Rental yield sounds simple: divide annual rent by property price. On a £200,000 property renting for £1,200/month (£14,400/year), that's 7.2% gross yield. But that 7.2% is misleading—it's before your mortgage, taxes, and expenses.
Here's the real calculation. Picture this: you're buying a two-bedroom flat in Manchester for £180,000 with a £45,000 deposit (25% LTV). You get a 5.2% interest-only mortgage over 25 years.
Monthly mortgage payment: £780 Expected rental income: £950/month Gross yield: 6.3% (£950 × 12 ÷ £180,000)
Now subtract the real costs:
- Mortgage: £780
- Buildings insurance: ~£40
- Council tax / business rates: ~£100
- Maintenance & repairs budget: ~£100 (10–15% of rent is typical)
- Letting agent fees (if used): ~£75 (typically 10% of rent)
- Void periods & bad debts: ~£50 (assume 1–2 weeks empty per year)
- Ground rent / service charge (if flat): ~£30
Total monthly costs: ~£1,175
Monthly cash flow: £950 − £1,175 = −£225 per month
You're paying £225/month out of your own pocket. This is a cash-flow-negative property.
Does that mean it's a bad investment? Not necessarily. You're still building equity (each mortgage payment reduces the capital you owe), and if the property appreciates 3%/year, you've made money on the price rise. But you can't hold it forever—at some point you need the cash flow to turn positive, either by raising rents, refinancing at a lower rate, or waiting until you've paid down enough capital to switch to a smaller mortgage.
This is why the stress test matters. A lender won't touch a deal like this because the rental income doesn't cover the mortgage, let alone a 2% rate rise.
Understanding Buy-to-Let Affordability
Buy-to-let lending is stricter than residential. Here's why lenders impose these rules, and how to navigate them.
The rental income must cover the mortgage at a stress-tested rate. This isn't arbitrary. If you hit a void period (tenant leaves, property sits empty for a month) or interest rates rise, can you keep paying? Lenders want to know the answer is yes. Typical stress test:
- Assumption 1: Interest rates are 2–3% higher than your deal rate.
- Assumption 2: The rent covers 120–125% of the stress-tested payment. That buffer accounts for void periods and maintenance.
On a £200,000 interest-only mortgage:
- Actual rate 5.2%: £867/month
- Stress-tested rate 7.2%: £1,200/month
- Rental income needed: £1,200 × 1.25 = £1,500/month
If your property only rents for £1,200/month, you won't get the mortgage, regardless of how much equity you have or how high your salary is.
Some lenders will accept a personal guarantee. If you're short on rental income but have strong salary, a few lenders will let you cover the gap from employment income. It's called a "personal undertaking" or "guarantor arrangement." But this is rare and expensive; most lenders don't accept it.
Your deposit size directly impacts your rate. A 75% LTV might get 5.2%; a 65% LTV might get 4.8%. The difference is 0.4%, or £67/month on a £200,000 mortgage. If you can stretch to a larger deposit, the rate improvement can be worth it. Read our guide on how much deposit you need to understand the leverage.
Interest-Only vs Repayment for Landlords
This is the big buy-to-let choice, and it's different from residential investing.
Interest-only keeps cash flow positive. On a £200,000 mortgage:
- Interest-only at 5.2%: £867/month
- Repayment over 25 years at 5.2%: £1,223/month
- Difference: £356/month, or £4,272/year
If your property rents for £1,200/month, interest-only gives you room to cover expenses and (barely) break even. Repayment forces you to subsidize the mortgage from your own pocket.
Repayment builds equity faster. With interest-only, you owe £200,000 in 25 years—the mortgage never shrinks. Understanding mortgage amortisation shows you exactly where each payment goes. With repayment, each payment reduces your balance, so you owe £0 in 25 years. If you can afford it, repayment is safer (you own the property outright eventually) and builds wealth faster.
Most landlords choose interest-only, then switch to repayment later. You start with interest-only to maximize yield, then refinance to repayment in your 50s/60s when you're earning more and kids' education costs drop. See whether you should pay off your mortgage or invest to weigh up the long-term strategy.
Tax, Expenses, and Your Real Return
Let's be honest about taxes. Rental income is taxable as business income. Your profit is rent minus all allowable expenses.
Income tax on rental profit. You pay tax on rent minus allowable expenses (mortgage interest, insurance, repairs, letting agent fees, council tax). At the basic rate (20%), if you make £6,000/year profit, you owe £1,200 in tax. At the higher rate (40%), it's £2,400.
Mortgage interest relief (2026 rules). Landlords get relief on mortgage interest at the basic rate (20%), regardless of their marginal rate. So if you pay £5,000/year in mortgage interest:
- Basic-rate taxpayer: 20% relief = £1,000 back
- Higher-rate taxpayer: 20% relief = £1,000 back (not 40%)
(This changed in 2017; before then, higher-rate taxpayers got full relief. It was a significant tax hike on buy-to-let.)
National Insurance. Rental income does NOT count toward National Insurance, so you don't pay the 8% NI on rental profit. That's genuinely helpful—it's why buy-to-let has remained attractive despite mortgage interest relief cuts.
Real return example. A £180,000 property renting at £950/month:
| Item | Monthly | Annual |
|---|---|---|
| Rent | £950 | £11,400 |
| Mortgage (interest-only at 5.2%) | £780 | £9,360 |
| Insurance | £40 | £480 |
| Maintenance | £95 | £1,140 |
| Letting agent | £75 | £900 |
| Council tax / utilities | £100 | £1,200 |
| Other (voids, bad debts) | £50 | £600 |
| Total outgoings | £1,140 | £13,680 |
| Shortfall | −£190 | −£2,280 |
You're negative £2,280/year. Add appreciation—if the property rises 3% per year, that's £5,400 in equity gain. So your total return is +£3,120, minus capital gains tax when you sell. Over a 10-year hold, that's £31,200 in appreciation (before CGT), which may or may not offset the cash drain.
HMRC has detailed rules on what counts as an allowable expense—always get an accountant's advice, as rules are technical.
Common Buy-to-Let Mistakes
Not stress-testing your own assumptions. Lenders stress-test at +2% interest. You should stress-test at +3–4%, factor in 4–6 weeks void per year, and budget 15% of rent for maintenance. If it still cash-flows, you've got a safe margin.
Forgetting about landlord-specific costs. You need landlord insurance, not homeowner insurance. You'll likely pay business rates or council tax (depending on local rules). You may need electrical certification every 5 years. Boiler breakdowns happen. Don't assume "rent covers mortgage" means profit.
Overestimating rent growth. Rents rise with inflation, typically 2–3%/year over the long term. Don't assume 5%+. And don't assume you'll always find a tenant willing to pay top market rate; there's friction, void periods, and tenant churn.
Overleveraging. Just because a lender will give you a 75% LTV mortgage doesn't mean you should take it. A larger deposit (65% LTV) gets better rates and lower monthly payments, leaving more room for cash flow. Consider whether you can truly afford the mortgage if rates rise 2–3% further.
Frequently Asked Questions
Q: Can I get a buy-to-let mortgage if the rental income doesn't cover the mortgage? A: Most mainstream lenders won't approve it. Some will accept a personal guarantee—you pledge your own income to cover the gap—but this is rarer and more expensive. If the deal doesn't cash-flow on rental income alone, consider a larger deposit (lower LTV), a longer mortgage term, or finding a cheaper property in the same area.
Q: What's the minimum deposit for a buy-to-let? A: Typically 20–25%. Some lenders go to 75% LTV (25% deposit) for standard mortgages. A few specialist lenders will go 80% LTV (20% deposit), but rates are higher. Understanding how much deposit you need helps you figure out the best strategy for your budget.
Q: Should I choose interest-only or repayment? A: Interest-only gives better cash flow now (lower monthly payment) but leaves you with debt in 25 years. Repayment costs more monthly but you own the property outright. Most buy-to-let investors choose interest-only initially, then remortgage to repayment in their 50s/60s.
Q: How does buy-to-let mortgage interest get taxed? A: From 2026, landlords get relief on mortgage interest at the basic rate (20%), not their full marginal rate. So a higher-rate taxpayer (40%) only gets 20% relief, not 40%. This reduces your tax advantage compared to pre-2017 rules. The relief is applied in your tax return or via your tax code.
Q: What counts as an allowable expense for tax? A: Mortgage interest, buildings insurance, council tax, business rates, repairs (not improvements), letting agent fees, accountant fees, utilities (if you cover them), and a reasonable maintenance budget. Capital improvements (a new kitchen, replacing the roof) are not allowable; they're added to your cost basis for capital gains tax. Always get an accountant's advice; the rules are detailed.
Q: Do I need a specialist buy-to-let mortgage broker? A: It helps. Some lenders only work with brokers; others have stricter buy-to-let criteria and a broker will know which ones are most flexible. A good broker can model different deals and find lenders that suit your specifics (large deposit, lower rent, mixed-use property, etc.). It's worth getting quotes from 2–3 brokers plus major lenders direct.