Buy-to-Let Mortgages 2026/27: How They Work, the Rental Stress Test and Costs

A plain-English guide for UK landlords and would-be landlords on how buy-to-let (BTL) mortgages work in 2026/27. BTL mortgages are often interest-only, usually need a larger deposit than a residential mortgage, and are assessed mainly on expected rental income. We cover the rental stress test in the PRA's standards (a 125% ICR industry standard and a 5.5% minimum stressed rate), upfront costs including the 5% additional-property SDLT surcharge, personal name vs limited company, regulated vs unregulated lending and portfolio landlords. For landlord tax, we link the dedicated guides rather than repeat them.

2026/27 buy-to-let mortgage at a glance

Individual lenders set their own deposit, ICR and stressed-rate policies within the PRA's expectations. Sources: PRA SS13/16 and GOV.UK (see the Sources list below).

1. How a buy-to-let mortgage works

A buy-to-let mortgage is a loan for a property you plan to rent out rather than live in. Three features usually set it apart from a residential mortgage:

• Often interest-only. On an interest-only mortgage the monthly payment covers only the interest and you repay the capital at the end of the term (for example by selling or refinancing). Payments are lower, but the debt does not shrink. Repayment buy-to-let mortgages also exist.
• Larger deposit. Lenders usually cap buy-to-let loan-to-value below residential levels, and the best rates go to borrowers with more equity.
• Assessed on rent. The loan size is driven mainly by the rent the property earns or is expected to earn. Lenders still check your finances, and some can use personal income to support the rental calculation.

Rental profit is taxable - report it through Self Assessment. See our complete landlord tax guide for 2026/27.

2. The rental stress test (ICR)

The rental stress test is the main hurdle in a buy-to-let application. Lenders apply an Interest Coverage Ratio (ICR): the rent must exceed the mortgage interest by a set margin. The Prudential Regulation Authority's Supervisory Statement SS13/16 sets the expectations:

• 125% minimum ICR - SS13/16 describes this as the current industry standard, and does not expect lenders to go below it.
• Tax is taken into account - lenders are expected to allow for the borrower's tax on the rent, including the restricted relief on mortgage interest. That is why many lenders apply a higher ICR to higher-rate taxpayers.
• Stressed interest rate of at least 5.5% - for the first five years, unless the rate is fixed or capped for five years or more.

Worked example: if the interest at the stressed rate is £1,000 a month, a 125% ICR needs rent of at least £1,250 a month. A lender using a higher ICR needs proportionately more. If the rent does not pass, the lender reduces or declines the loan.

3. Deposit and upfront costs

Buy-to-let carries more upfront cost than a residential purchase. Budget for:

• Deposit - set by the lender's maximum loan-to-value for the product.
• Product / arrangement fee - sometimes charged as a percentage of the loan, so compare the total cost over the fixed period, not just the rate.
• SDLT additional-property surcharge - in England and Northern Ireland, buying an additional residential property adds 5% on top of the standard Stamp Duty Land Tax rates (raised from 3% for transactions completing on or after 31 October 2024). Scotland (LBTT) and Wales (LTT) run their own systems with their own additional-property rates.
• Valuation, legal and (if used) broker fees, plus running costs - letting or management, insurance, maintenance, safety certificates and empty periods.

4. Personal name vs limited company

You can hold a buy-to-let in your own name or through a limited company, often a special purpose vehicle (SPV). Many landlords use a company because of the Section 24 finance-cost restriction: individual landlords cannot deduct mortgage interest from rental income and instead get a basic-rate tax reduction (20% now; the government has announced finance cost relief at the 22% property basic rate from April 2027, per the HMRC policy paper), whereas a company can generally deduct its finance costs before Corporation Tax.

Fewer lenders offer company buy-to-let mortgages than personal-name ones. Incorporating is not automatically better - it depends on your income, portfolio size, how much profit you draw out and your plans, and there are set-up and running costs:

• Section 24 mortgage-interest restriction, detailed 2026/27 guide - how the finance-cost restriction works.
• Landlord limited-company incorporation guide 2026/27 - whether an SPV makes sense, and the costs and trade-offs.

Take professional tax and mortgage advice before choosing a structure - moving a personal property into your own company is a disposal at market value, which can trigger SDLT and Capital Gains Tax.

5. Regulated vs unregulated, and portfolio landlords

Most buy-to-let mortgages are not FCA regulated, because they are business lending. The exception is consumer buy-to-let (CBTL): under the Mortgage Credit Directive Order 2015 (SI 2015/910), a CBTL contract is a buy-to-let mortgage not entered into wholly or predominantly for the purposes of a business the borrower carries on - typically an "accidental landlord" letting a former home or an inherited property. Firms doing CBTL business must be registered with, or authorised by, the FCA.

Portfolio landlords face extra scrutiny. SS13/16 treats borrowers with 4 or more distinct mortgaged buy-to-let properties, together or separately, as portfolio landlords, and expects lenders to use a specialist underwriting approach - looking across the whole portfolio and often asking for a property schedule, cash-flow figures and a business plan.

6. How to apply and when a broker helps

A typical application runs: decision in principle, full application with the property's rental figures (and, for companies, SPV details), a lender valuation that also assesses the achievable rent, the ICR stress test, then the offer and completion. A specialist broker can help, particularly for limited-company lending or portfolio landlords:

• Market access. Some lenders deal only through intermediaries.
• Matching the stress test. Lenders' ICRs and stressed rates differ, which can change how much you can borrow.
• Portfolio packaging. For 4+ mortgaged properties, a broker can collate the property schedule, rents and business plan lenders ask for.

This guide is general information, not mortgage advice. We do not recommend specific lenders or brokers.

Related landlord guides

• Buy-to-let landlord complete guide 2026/27 - rental income, allowable expenses and how landlord tax works.
• Section 24 mortgage-interest restriction, detailed 2026/27 guide - the finance-cost restriction that drives many company purchases.
• Landlord limited-company incorporation guide 2026/27 - whether to hold buy-to-lets in an SPV.
• Self-employed and contractor mortgage guide 2026/27 - how lenders assess self-employed income for a mortgage.