Buy to Let Mortgage Calculator

Buy-to-let mortgages are assessed very differently to residential ones — lenders care primarily about whether the rental income covers the mortgage, not just your personal income. Our buy to let mortgage calculator checks your numbers against a typical lender rental cover test, shows your gross yield, and estimates the tax impact of the Section 24 rules that changed how landlord tax relief works.

How Lenders Actually Assess Buy-to-Let Affordability

Most buy-to-let lenders use an Interest Coverage Ratio (ICR) test, requiring the expected rental income to be at least 125–145% of the mortgage interest, calculated at a “stressed” notional rate — often around 5.5%, even if your actual pay rate is lower — to build in a safety margin against future rate rises or rental voids. Higher-rate taxpayers are frequently stress-tested at a higher ICR (commonly 145%) than basic-rate taxpayers (commonly 125%), because HMRC treats rental profit less favourably for higher earners under current tax rules.

Section 24: The Rule That Changed Everything for Landlords

Since April 2020, landlords can no longer deduct mortgage interest from their rental income before calculating tax. Instead, you pay tax on the full rental income, then receive a flat 20% tax credit on your mortgage interest. For basic rate taxpayers this is broadly neutral, since 20% was roughly the relief they would have had anyway. For higher and additional rate taxpayers, however, this is a significant change — you now effectively lose relief at 20% on interest costs, even though your rental profit is taxed at 40% or 45%, which can turn a property that looks profitable on a cash-flow basis into one that generates a real tax liability.

Gross Yield: A Useful First Filter

Gross rental yield (annual rent divided by property price) is a quick way to compare potential buy-to-let properties before diving into the full financial picture. It ignores costs and tax, so it should never be the only figure you look at, but it is a useful screening tool — many experienced landlords look for a gross yield in the region of 6% or higher outside London and the South East, where lower yields are typically offset by stronger long-term capital growth prospects instead.

A Worked Example

A £200,000 property with a £50,000 deposit, a 5.4% mortgage rate and £1,050 monthly rent gives a gross yield of 6.3%. At a stress rate of 5.5% and a 145% ICR requirement (higher-rate taxpayer), the lender would want to see rent of at least around £933 a month against the stressed interest — this property passes comfortably. But once Section 24 is applied, a higher-rate taxpayer could find their annual tax bill on the rental profit is considerably higher than a basic-rate landlord would pay on an identical property, even though the pre-tax cash flow is the same.

Limited Company Buy-to-Let: A Growing Trend

Partly in response to Section 24, an increasing proportion of new buy-to-let purchases in the UK are now made through a limited company structure rather than in an individual’s own name. Within a company, mortgage interest remains a fully deductible business expense against rental profit, and profits are taxed at corporation tax rates rather than personal income tax rates — often more favourable for higher-rate taxpayers with substantial portfolios. However, company structures come with their own costs and complexities: mortgage rates for limited company buy-to-let are often slightly higher, accountancy costs increase, and extracting profit from the company (via dividends or salary) triggers its own tax considerations. Whether a company structure makes sense depends heavily on your personal tax position, portfolio size and long-term plans, so this is an area where professional tax advice genuinely pays for itself before you commit to a particular structure.

Frequently Asked Questions