Buy to let mortgage loans
By Shamayun Chowdhury, Senior Accountant (ACMA, MAAT) · Published: 27 October 2026 · Last reviewed: October 2026 · Applies to the 2026/27 tax year and announced changes from April 2027
Buy to let mortgage loans are secured on a property you rent out. Lenders base the loan mainly on the expected rent, not your salary, and usually want a deposit of 20–25%. Tax decides whether the loan pays: individual landlords get only a 20% credit for mortgage interest, rising to 22% from April 2027, and pay a 5% stamp duty surcharge on the purchase.
Most guides to buy-to-let mortgage loans stop at rates, deposits and lender criteria. The tax is treated as a footnote. In practice it is often the tax, not the interest rate, that decides whether a rental property makes or loses money.
This guide explains how buy-to-let mortgage loans work, how lenders decide what you can borrow, and every tax that applies from purchase to sale. That includes Section 24, the April 2027 property tax rise, stamp duty, the limited company route, Capital Gains Tax and Making Tax Digital. Worked examples show the figures, and each rule links to an official or professional source.
- Lenders test whether the rent covers the interest, usually by 125% to 145% at a stressed rate.
- Individual landlords cannot deduct mortgage interest from rent. They get a basic-rate tax credit instead.
- From April 2027, property income in England, Wales and Northern Ireland is taxed at 22%, 42% and 47%.
- A 5% stamp duty surcharge applies to additional homes, including purchases by companies.
- Landlords with qualifying income over £50,000 must already use Making Tax Digital from April 2026.
- How buy-to-let mortgage loans work
- How lenders decide what you can borrow
- How the interest is taxed: Section 24
- Property tax changes from April 2027
- Stamp duty on a buy-to-let purchase
- Personal name vs limited company
- Remortgaging and releasing equity
- Capital Gains Tax when you sell
- Making Tax Digital for landlords
- Tax checklist before you apply
- FAQs
- Final verdict
Buy-to-Let Mortgage Loans: How They Work
A buy-to-let mortgage is a loan to buy, or refinance, a home you intend to let to tenants. The property is security for the debt, so the lender can repossess it if repayments stop. Because the rent is expected to pay the interest, buy-to-let mortgage loans are assessed differently from the mortgage on your own home.
Buy-to-let vs residential mortgage
| Feature | Residential mortgage | Buy-to-let mortgage |
|---|---|---|
| Main affordability test | Your income and outgoings | Expected rent against stressed interest |
| Typical deposit | 5–10% | 20–25% or more |
| Usual repayment type | Capital and interest | Often interest-only |
| Tax on the interest | No relief | 20% credit for individuals; full deduction for companies |
| FCA regulation | Regulated | Usually not, unless letting to close family |
Interest-only vs repayment, and why it matters for tax
With an interest-only loan, your monthly payment covers interest and the full balance is repaid at the end, often from the sale. A repayment loan clears the debt gradually but costs more each month. For tax, only the interest counts. Capital repayments get no relief at all, so a repayment mortgage can leave you paying tax on rent you have already spent on reducing the loan.
How Lenders Decide What You Can Borrow
The interest cover ratio
Since 2017, Prudential Regulation Authority rules have required lenders to stress test rent at an interest rate of at least 5.5%, unless the loan is fixed for five years or more. As mortgage expert Ray Boulger summarised, the minimum rental cover stays at 125%, and lenders can set it higher. Many now use around 145% for higher-rate taxpayers and 125% for basic-rate taxpayers and limited companies, because Section 24 hits higher earners harder.
Monthly rent £1,200, stress rate 5.5%, interest-only.
At 125% cover: maximum interest = £1,200 ÷ 1.25 = £960 a month. Loan = £960 × 12 ÷ 5.5% = £209,455
At 145% cover: maximum interest = £1,200 ÷ 1.45 = £827.59 a month. Loan = £827.59 × 12 ÷ 5.5% = £180,564
Your tax band alone could change the loan by almost £29,000. Lenders’ actual criteria vary.
Deposit and loan-to-value
Most buy-to-let mortgage loans go up to 75% of the property’s value, and the best rates usually sit at 60–65%. A bigger deposit lowers both the rate and the interest you pay tax on. Lenders offering buy-to-let mortgage loans also look at your credit record, whether you own your own home, and your experience as a landlord.
How Buy-to-Let Mortgage Loans Are Taxed: Section 24
Section 24 of the Finance (No. 2) Act 2015 changed the tax treatment of buy-to-let mortgage loans for individual landlords. It was phased in from April 2017 and has applied in full since April 2020. You can no longer deduct mortgage interest from your rent before working out the tax.
The 20% tax credit
Instead of a deduction, you get a tax reduction worth 20% of your finance costs. A basic-rate taxpayer ends up roughly where they were before. A higher or additional-rate taxpayer loses the difference between their rate and 20%, and the higher taxable income can also push some landlords into a higher band or reduce their Personal Allowance.
Worked example: the tax on one property
Rental profit before interest: £20,000. Mortgage interest: £8,000. The landlord’s salary already uses the basic-rate band, so all rental profit is taxed at the higher rate.
Before Section 24: (£20,000 − £8,000) × 40% = £4,800
2026/27: £20,000 × 40% = £8,000, minus credit £8,000 × 20% = £1,600. Tax = £6,400
From April 2027: £20,000 × 42% = £8,400, minus credit £8,000 × 22% = £1,760. Tax = £6,640
Same rent, same loan, £1,840 a year more tax than before the rules changed.
What counts as a finance cost
Finance costs include mortgage interest, interest on loans to buy furnishings, and fees for arranging or ending the loan. Capital repayments do not count. Unused credit can be carried forward to later years if your property profit is too low to absorb it.
Property Tax Changes From April 2027
The Finance Act 2026 creates separate tax rates for property income. The House of Commons Library confirms that from April 2027 the property basic, higher and additional rates will be 22%, 42% and 47% in England, Wales and Northern Ireland. Scotland and Wales will be able to set their own property rates.
| Band | 2026/27 | From 2027/28 (property income) |
|---|---|---|
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
| Finance cost credit | 20% | 22% |
The credit for mortgage interest is expected to follow the new property basic rate. As Lanop explains, relief for finance costs moves to 22% from April 2027, which softens the rise for basic-rate landlords but not for higher earners. If you are taking out buy-to-let mortgage loans now, run your figures at the 2027 rates, not today’s.
Stamp Duty on a Buy-to-Let Purchase
If you already own a home, a buy-to-let purchase in England or Northern Ireland usually attracts the higher rates for additional dwellings. Deloitte’s Budget summary confirms the surcharge rose from 3% to 5% from 31 October 2024, and it also applies to companies buying homes. Wales and Scotland have their own taxes and rates.
First £125,000 at 0% + 5% surcharge = 5% × £125,000 = £6,250
Next £125,000 at 2% + 5% surcharge = 7% × £125,000 = £8,750
Total Stamp Duty Land Tax: £15,000, payable within 14 days of completion. Buy-to-let mortgage loans will not normally cover this cost, so budget for it on top of the deposit.
Personal Name vs Limited Company (SPV) Mortgage
Many landlords now take out buy-to-let mortgage loans through a special purpose vehicle (SPV), a limited company set up only to hold property. Companies are outside Section 24, so they deduct interest in full. The trade-offs are shown below.
| Factor | Personal name | Limited company (SPV) |
|---|---|---|
| Mortgage interest | 20% credit (22% from 2027) | Fully deductible |
| Tax on profit | Income Tax 20–45% (22–47% from 2027) | Corporation Tax 19–25% |
| Taking money out | No further tax | Dividend tax of 10.75% or 35.75% from 2026/27 |
| Mortgage rates | Wider choice, often cheaper | Fewer lenders, personal guarantees usual |
| Running costs | Self Assessment return | Company accounts, CT600, Companies House filings |
| Moving existing property in | n/a | Usually triggers SDLT and CGT |
The dividend rates above come from the rates effective from 6 April 2026. A company often suits higher-rate landlords who plan to reinvest profit. A basic-rate landlord with one property may gain little. See our guide to limited company accounts before deciding.
Remortgaging and Releasing Equity: The Tax Trap
Remortgaging to a cheaper deal is straightforward for tax. Releasing equity is not. HMRC’s property manual explains that interest is generally relievable when the borrowing funds the letting business, including withdrawing capital up to the value of the property when it was first let. Borrowing beyond that to fund a holiday or your own home can make part of the interest ineligible.
Selling Later: Capital Gains Tax and the 60-Day Rule
When you sell a buy-to-let held personally, the gain is taxed at 18% within your basic-rate band and 24% above it, after the £3,000 annual exempt amount. GOV.UK requires you to report and pay the tax within 60 days of completion. Paying off buy-to-let mortgage loans from the sale proceeds does not reduce the gain, but purchase costs, sale costs and capital improvements do.
Making Tax Digital for Landlords
Making Tax Digital for Income Tax is now live. It is based on your qualifying income before expenses, meaning gross rent plus any self-employment turnover, not profit. As Nationwide’s landlord guide sets out, the threshold falls in three stages:
| From | Qualifying income over | What you must do |
|---|---|---|
| 6 April 2026 | £50,000 | Digital records, quarterly updates, final declaration |
| 6 April 2027 | £30,000 | As above |
| 6 April 2028 | £20,000 | As above |
Expanding with more buy-to-let mortgage loans can quickly change this. A second rental property can easily take you over £30,000 of gross rent. Check whether MTD applies to you and read our full guide to Making Tax Digital for landlords.
Tax Checklist Before You Apply for Buy-to-Let Mortgage Loans
- Work out your tax band with the rent added, at both 2026/27 and 2027/28 rates.
- Calculate profit after tax, not just whether the rent covers the mortgage.
- Budget for the 5% stamp duty surcharge in cash.
- Decide on personal name or company before you buy, as switching later is costly.
- Check whether the new rent pushes you into Making Tax Digital.
- Keep the completion statement for your future CGT calculation.
The question I ask every new landlord is simple: what is left after tax? A property that covers its mortgage on paper can still lose money once Section 24 and the 2027 rates are applied. Run the after-tax figures before you choose the loan, not after. — Shamayun Chowdhury
Common Mistakes With Buy-to-Let Mortgage Loans
| Mistake | Result | Better approach |
|---|---|---|
| Deducting interest as an expense | Tax underpaid, interest and penalties | Claim the finance cost credit instead |
| Claiming capital repayments | Claim refused | Use the interest figure only |
| Moving property into a company without advice | Unexpected SDLT and CGT bills | Model both taxes first |
| Ignoring the 2027 rate rise | Profits lower than forecast | Forecast at 22/42/47% |
Frequently Asked Questions
Can I claim mortgage interest on a buy-to-let?
Not as a deduction if you own the property personally. You receive a tax credit worth 20% of the interest, rising to 22% from April 2027. Companies deduct interest in full.
Are buy-to-let mortgage loans still worth it after Section 24?
They can be, especially for basic-rate taxpayers, larger deposits or company ownership. Higher-rate landlords should check the after-tax profit carefully before borrowing.
Do I pay the stamp duty surcharge on a buy-to-let?
Usually yes, if you already own a home or buy through a company. In England and Northern Ireland the surcharge is 5% on top of standard rates.
Is a limited company mortgage better for tax?
Often for higher-rate taxpayers who reinvest profits, because interest is fully deductible. Rates are usually higher and taking money out triggers dividend tax.
Does my tax band affect how much I can borrow?
It can. Many lenders apply a tougher rental cover test, around 145%, to higher-rate taxpayers than to basic-rate taxpayers or companies.
Do I need an accountant to get a buy-to-let mortgage?
Not to apply, but lenders often ask for tax calculations or company accounts. An accountant also helps you choose the right ownership structure before you buy.
Final Verdict: Are Buy-to-Let Mortgage Loans Still Worth It After Tax?
Buy-to-let mortgage loans can still work, but only when you judge them on after-tax profit. Section 24, the 2027 property rates and the 5% stamp duty surcharge all reduce the return, while a company structure or a larger deposit can restore it. Run the numbers for your own tax band before you apply.
- Calculate your rental profit after tax at 2027/28 rates.
- Compare personal and company ownership for your situation.
- See the landlord tax and accounting services MTDFix offers.
✓ Landlord tax returns and MTD
✓ Fixed fees, agreed before we start