Residential vs Buy-to-let mortgages

What is a residential mortgage?

A residential mortgage is for a property you intend to live in yourself. It’s purely for residential purposes you buy it to reside in it.

What is a buy-to-let mortgage?

A buy-to-let (BTL) mortgage is for an investment property a property you purchase to rent out. You do not live in it; it’s purely for generating rental income.

Are there differences in deposit requirements?

Yes.

Residential mortgages:

• Banks know you will live in and care for the property, so the deposit required is smaller.
• Deposits usually start at 5%, and in some rare cases, 0%, though not everyone qualifies. To be safe, 10% is more typical.

Buy-to-let mortgages:

• Considered riskier since someone else will live in the property.
• Deposit requirements usually start at 25%, although some lenders occasionally offer 20%.

How do affordability checks differ?

Residential: Lenders check your personal income and financial circumstances to ensure you can afford the mortgage.

Buy-to-let: Lenders focus on rental income.

They perform stress tests to account for:

• Vacant periods with no tenants.
• Interest rate rises (which could increase mortgage payments).
• Your ability to cover mortgage payments personally if rental income is insufficient.

BTL mortgages are often less strict in personal affordability because the rental income should cover the mortgage.

Why is the deposit higher for buy-to-let mortgages?

The bank sees buy-to-let as a higher risk because you’re not living in the property. Residential mortgages are lower risk since you’re living there, and lenders also assess your affordability personally.

Are interest rates different?

Yes. Residential mortgage rates are usually cheaper. BTL mortgages tend to be about 1% higher due to the higher risk associated with investment properties.

Can I live in a buy-to-let property?

Generally, no. BTL properties are meant for renting out. Living in a BTL property requires explicit permission from the bank, which is rarely granted.

Banks avoid the “backdoor residential” scenario, where someone buys a BTL but moves in immediately.

BTL mortgages are often interest-only, further complicating personal occupancy.

Can I rent out my home if I have a residential mortgage?

You can, but you must notify the bank and obtain consent to let.

This may involve a fee, depending on the lender.

The bank assesses whether they are comfortable with the change in usage.

Which mortgage is easier to get?

It depends:

Buy-to-let: Easier to get if you have rental income and a deposit, but lenders usually require you to have a residential mortgage first to prevent backdoor residential issues.

Residential: Affordability is stricter because lenders evaluate your personal income, commitments, and financial stability.

Key takeaways

• Purpose: Residential = live in it; Buy-to-let = rent out for investment.
• Deposit: Residential = 5–10%; Buy-to-let = 25%.
• Affordability check: Residential = based on personal income; Buy-to-let = based on rental income.
• Interest rates: Buy-to-let rates are generally around 1% higher than residential.

Knowing these differences is essential when deciding whether to live in a property or rent it out. Always consult with a mortgage adviser if you have questions about your specific situation.