A buy-to-let mortgage works differently to a residential mortgage — lenders assess affordability based on projected rental income rather than your salary, and interest-only products are standard. The calculator below lets you model monthly payments for both interest-only and repayment mortgages, compare rental yield, and run a quick stress test.
Buy-to-Let Mortgage Rates in 2026
Buy-to-let mortgage rates are typically 0.5–1.5% higher than equivalent residential rates. In 2026, typical buy-to-let rates are:
| LTV | 2-Year Fixed | 5-Year Fixed | Tracker |
|---|---|---|---|
| 60% (40% deposit) | 4.1% | 4.4% | 4.0% |
| 70% (30% deposit) | 4.5% | 4.8% | 4.4% |
| 75% (25% deposit) | 4.8% | 5.1% | 4.7% |
| 80% (20% deposit) | 5.5% | 5.8% | 5.4% |
Indicative market rates, April 2026. Actual rates depend on lender, credit profile, and property type.
Securing a 60% LTV deal by putting in a 40% deposit typically reduces your rate by 0.7–1.4 percentage points compared to a 75% LTV deal — a significant saving over a 25-year term.
Interest-Only vs Repayment: Monthly Payment Comparison
The majority of buy-to-let investors choose interest-only to maximise monthly cash flow. Below is a direct comparison on a £200,000 mortgage over 25 years at various rates.
| Interest Rate | Interest-Only/Month | Repayment/Month | Monthly Saving (Interest-Only) |
|---|---|---|---|
| 4.0% | £667 | £1,056 | £389 |
| 4.5% | £750 | £1,112 | £362 |
| 5.0% | £833 | £1,169 | £336 |
| 5.5% | £917 | £1,228 | £311 |
| 6.0% | £1,000 | £1,289 | £289 |
The trade-off: with interest-only, your £200,000 loan balance remains at £200,000 after 25 years. You must have a credible repayment vehicle — typically the sale of the property — before a lender will approve interest-only terms.
Monthly Payments by Mortgage Size (Interest-Only at 4.8%)
| Loan Amount | Monthly Payment | Annual Interest Cost |
|---|---|---|
| £100,000 | £400 | £4,800 |
| £150,000 | £600 | £7,200 |
| £200,000 | £800 | £9,600 |
| £250,000 | £1,000 | £12,000 |
| £300,000 | £1,200 | £14,400 |
| £400,000 | £1,600 | £19,200 |
Based on interest-only at 4.8% (typical 75% LTV 2-year fix, April 2026).
How to Calculate Rental Yield
Gross rental yield measures annual rent as a percentage of property value:
Gross Yield = (Annual Rental Income ÷ Property Value) × 100
Net rental yield deducts annual costs first:
Net Yield = ((Annual Rental Income − Annual Costs) ÷ Property Value) × 100
Worked Example
A property worth £225,000 rents for £1,250/month (£15,000/year). Annual costs: letting agent 10% = £1,500, insurance £600, maintenance allowance £750 = £2,850 total.
- Gross yield: £15,000 ÷ £225,000 × 100 = 6.67%
- Net yield: (£15,000 − £2,850) ÷ £225,000 × 100 = 5.40%
Rental Yield by UK Region (2026)
| Region | Avg House Price | Avg Rent (1-bed) | Gross Yield |
|---|---|---|---|
| North East | £145,000 | £700/mo | 5.8% |
| Yorkshire & Humber | £190,000 | £850/mo | 5.4% |
| North West | £200,000 | £950/mo | 5.7% |
| West Midlands | £220,000 | £950/mo | 5.2% |
| East Midlands | £210,000 | £875/mo | 5.0% |
| South West | £290,000 | £1,050/mo | 4.3% |
| South East | £360,000 | £1,200/mo | 4.0% |
| London | £520,000 | £2,100/mo | 4.8% |
| Scotland | £185,000 | £900/mo | 5.8% |
| Wales | £195,000 | £825/mo | 5.1% |
Northern regions generally offer higher gross yields. London and the South East offer lower yields but stronger capital appreciation potential. Scotland and the North West currently have the highest gross yields in the UK.
The Rental Income Stress Test
Lenders do not simply check that rent covers your mortgage payment — they stress test it. Most UK lenders require:
Monthly Rental Income ≥ 125% of Monthly Mortgage Payment (at a stressed rate of 5–6%)
For higher-rate taxpayers, many lenders apply a tougher 145% coverage ratio.
Stress Test Examples (Interest-Only at 5.5%)
| Mortgage Amount | Monthly Payment | 125% Rental Required | 145% Rental Required |
|---|---|---|---|
| £150,000 | £688 | £860 | £997 |
| £200,000 | £917 | £1,146 | £1,330 |
| £250,000 | £1,146 | £1,433 | £1,662 |
| £300,000 | £1,375 | £1,719 | £1,994 |
If the rental income you can realistically achieve does not meet the stress test threshold, lenders will reduce the loan amount they are willing to offer, or decline the application.
Deposit Requirements and What They Mean for Your Rate
Most buy-to-let lenders require a minimum 25% deposit (75% LTV). Here is what different deposit sizes mean in practice on a £250,000 property:
| Deposit | LTV | Loan Amount | Monthly Payment (5% IO) | Rental Needed (125%) |
|---|---|---|---|---|
| £50,000 | 80% | £200,000 | £833 | £1,041 |
| £62,500 | 75% | £187,500 | £781 | £977 |
| £75,000 | 70% | £175,000 | £729 | £911 |
| £100,000 | 60% | £150,000 | £625 | £781 |
A 40% deposit versus a 25% deposit on a £250,000 property reduces your monthly interest-only payment by £156/month — saving £1,872/year — and typically unlocks a rate reduction of 0.7–1.0 percentage points.
Buy-to-Let Tax Rules in 2026
Section 24 Mortgage Interest Relief
Since April 2020, landlords can no longer deduct mortgage interest from rental income before calculating their tax bill. Instead:
- Basic-rate taxpayers (20%): Receive a 20% tax credit on mortgage interest paid. No change in effective tax versus pre-2017 rules.
- Higher-rate taxpayers (40%): Pay 40% tax on full rental income, then receive only a 20% credit. Effective mortgage interest relief is 20% — meaning they are taxed on 20% of their interest cost with no deduction.
Example on a £200,000 interest-only mortgage at 4.8% = £9,600/year interest:
| Tax Position | Rental Income | Old Rules Tax | 2026 Tax | Extra Annual Tax |
|---|---|---|---|---|
| Basic-rate (20%) | £15,000 | £1,080 | £1,080 | £0 |
| Higher-rate (40%) | £15,000 | £2,160 | £4,080 | £1,920 |
Higher-rate landlords effectively pay tax on a portion of their mortgage interest under Section 24.
Capital Gains Tax on Buy-to-Let
When you sell a buy-to-let property, Capital Gains Tax (CGT) applies to the gain. In 2026/27:
- Basic-rate taxpayers: 18% CGT on residential property gains
- Higher-rate taxpayers: 24% CGT on residential property gains
- Annual CGT exempt amount: £3,000
See the Capital Gains Tax Guide for detail on principal private residence (PPR) relief and how to calculate your taxable gain.
Stamp Duty Surcharge
Buy-to-let purchases in England incur a 5% Stamp Duty surcharge on the full purchase price on top of standard SDLT rates. On a £250,000 property, the surcharge adds £12,500 compared to a first home purchase. Use the Stamp Duty Calculator to calculate your exact liability.
Is Buy-to-Let Still Worth It in 2026?
Profitability depends heavily on your tax position, financing costs, and local market fundamentals.
| Investor Profile | Likely Viability |
|---|---|
| Cash buyer, basic-rate taxpayer | Strong — net yield 4–6%+ in most regions |
| Mortgaged, basic-rate taxpayer | Viable with 5.5%+ gross yield and low void periods |
| Mortgaged, higher-rate taxpayer | Tight — Section 24 significantly erodes profit |
| Limited company (SPV) | Popular for higher earners — can still deduct mortgage interest; pays 25% corporation tax |
Many higher-rate taxpayer landlords now hold properties via a Special Purpose Vehicle (SPV) limited company to preserve full mortgage interest deductibility. Seek independent tax advice before structuring a purchase this way, as there are additional costs (accountancy, legal, higher mortgage rates for limited companies).
Related UK Mortgage Calculators
- Mortgage Overpayment Calculator
- Interest-Only Mortgage Calculator
- Equity Release Calculator
- Stamp Duty Calculator
- Capital Gains Tax Guide
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