Low deposit buy to let mortgages

You cannot get a buy to let mortgage with no deposit, however, you may be able to raise a deposit in ways you haven’t considered.

You could borrow against, or ‘leverage’, equity in another property.

This can be done by remortgaging your property, to release any available equity in it, to use as a buy to let deposit. This is called remortgaging to ‘release capital’.

Second charge mortgages are another way of raising a buy to let deposit from a property you own. A second charge mortgage sits alongside any existing borrowing (e.g. a mortgage) on a property.

The advantage of a second charge mortgage is that your primary borrowing doesn’t need to be changed. This is beneficial if you are still within the deal period of your mortgage, meaning you are subject to paying ‘early repayment charges’ (ERCs), if you remortgage. Alternatively, you might have a low rate mortgage you don’t want to touch.

Clearly remortgaging to raise a buy to let deposit, or taking a second charge mortgage to do so, extends your overall borrowing, so it should be done with appropriate caution and only if it is affordable to you.

If you don’t own other property that you can borrow against, your only route to securing a deposit for a first time buy to let is to raise the cash. You will need a deposit of at least 15% of the property value.

For example, if the property you are interest in is worth £180,000, you would need at least £27,000 to achieve a 15% deposit.

Be aware that interest rates may vary a lot within a fairly small variance in deposit amount. Rather than borrowing with a 15% deposit, if you could raise an additional 5% to get to a 20% deposit, you may find interest rates are a lot lower.

Bear in mind that there are other costs when investing in buy to let. These include legal fees and mortgage product fees. Where you are not borrowing at the maximum loan to value threshold, some fees can be added to the loan amount with some lenders.

Getting into property investment for the first time may mean you have no choice but to use a low deposit buy to let mortgage.

Similarly, even if you are investing in a second, third, fourth or fifth property, you may only be in a position to raise a small buy to let mortgage deposit.

Typically, the more you put down as a deposit, the lower the mortgage interest rates are. This is because the more you put down, the more risk you are taking on in the agreement with the lender.

There is no reason why you shouldn’t invest in buy to let with a low deposit, but there are pros and cons to consider.

One thing to bear in mind is that if property prices fall and you have only put down a small deposit, you are more at risk of falling into negative equity, where the property value falls below the amount you paid for it.

To explain this point, if you bought a property worth £200,000 with a 15% deposit of £30,000, you would owe the lender £170,000.

If the property value fell to £155,500, you would be at 110% loan to value, putting you in negative equity. This would prevent you remortgaging, unless you could find extra money to top up your borrowing with.

If you bought the same property worth £200,000 but with a bigger deposit, for example £83,600, you would owe the lender £116,400.

If the property value fell to £145,500, you would be at 85% loan to value, so you would not be in negative equity. There are buy to let mortgages available at the loan to value threshold, so you could still remortgage (if this scenario played out at the time your mortgage renewal date came around).

Ultimately, as long as the mortgage is affordable for you, there is nothing to stop you investing in buy to let with a low deposit, nor is there anything wrong with doing so.

Taking out a buy to let mortgage with a low deposit can be beneficial, as it might allow you to invest in two or more properties, rather than just one. By doing that, you have multiple rental income streams, which could mean the total income you receive exceeds the amount you would have achieved from just one property.

Investing in multiple properties, rather than one, could also lessen the financial impact on you, if you have a period when a tenant moves out and one of your properties is empty with no rent coming in.

Yes, you can currently get a mortgage with a 15% deposit.

You may be able to increase a cash deposit by taking a second charge out on another property you own, or by raising capital from the equity in another property you own. Talking to a broker can be useful in investigating the options to you.

Sometimes 85% LTV deals are withdrawn from the market. During the Coronavirus pandemic, 15% deposit buy to let mortgages were temporarily unavailable, but came back into the market after lockdown.

This emphasises the importance of securing a deal you want when you see it is available, because lenders can make changes at any time.

Yes, you can get a buy to let mortgage with a 20% deposit. It is worth comparing mortgage interest rates at different deposit amounts, because you might find that 5% extra on your deposit at each deposit threshold makes a big difference to the mortgage interest rates available to you.

No, you cannot get a buy to let mortgage with 10% deposit, unless you have other property you can borrow against, to get at least 15% of the property value together.

Remember, there are other costs associated with a buy to let mortgage than just the deposit, and also wider costs associated with managing a rental property.

So, if you are struggling to raise funds for a deposit, it might be better to wait until you can save up a larger amount, or look at investing in a lower value property so that your deposit amount constitutes a larger percentage of the property value.

Investing in a lower value property does not necessarily mean the yield you achieve is less than a bigger, more expensive property.

No, you can invest in rental property with as little as 15% deposit, or even no cash from your pocket at all, if you can raise a deposit by borrowing against other property you own.

Many websites talk about needing a 25% deposit for a buy to let mortgage, because it is at this threshold where a larger number of lenders offer buy to let mortgage deals. Whereas, once you reduce your deposit to 15%-20%, there are fewer deals on offer from fewer lenders.

As a general rule, interest rates do become lower the more you put down as a deposit, which is likely to mean the monthly mortgage payment becomes lower as a result. The maximum amount of deposit you put down, at which point rates don’t tend to go any lower is 40% of the property value.

The minimum amount of cash you have to put down on a buy to let mortgage is currently 15% of the value of the property you are buying.

If you are struggling to raise a deposit, you might consider using equity in other property you own to raise the necessary funds.