How to Use a Buy-to-Let Mortgage Calculator
By Ricky Gandhi, Principal Broker at 1st Choice Mortgages
Learn how to use a buy to let mortgage calculator, what each input means, and what a calculator can and can't tell you before you apply.
If you're thinking about buying a rental property, a buy to let mortgage calculator is one of the quickest ways to get a feel for the numbers. In a couple of minutes you can see roughly what the mortgage might cost, whether the rent looks like it could cover it, and how much cash you might need to put in.
But a calculator is only as useful as the figures you give it, and it can't tell you everything. In this guide I'll walk you through each input, show you a worked example, and explain what a calculator can and cannot tell you, so you can use it with confidence.
What does a buy to let mortgage calculator do?
A buy to let mortgage calculator gives you an estimate based on a handful of details about the property, the loan and the rent you expect to receive. Most will show you:
Your estimated monthly mortgage payment
How much of a deposit you may need
Whether the expected rent could cover the mortgage
A rough rental yield
Think of it as a quick sense-check at the start of your research, not a decision-maker. You can try ours at any time with the buy-to-let calculator.
The inputs, step by step
1. Property value or purchase price
This is the price you expect to pay, or the current value if you're remortgaging. It sets the starting point for the deposit and the loan, so use a realistic figure rather than an optimistic one.
2. Deposit
Buy-to-let lenders generally want a larger deposit than residential lenders. Many ask for around 25%, and a bigger deposit can open up better rates. Remember to think about the whole cost of buying, not just the deposit, including legal fees, any stamp duty (additional properties usually attract a surcharge) and arrangement fees.
3. Loan amount
This is the purchase price minus your deposit. The calculator uses it to work out your monthly payment, and lenders use it to measure the loan against the property's value (the loan to value, or LTV).
4. Expected monthly rent
This is the input that matters most for buy-to-let. Lenders look at the rent a property can achieve, not just your income, so be honest and check it. Look at similar properties nearby on listing sites, and ask a local letting agent what they would expect to achieve.
5. Interest rate
Enter a rate close to what's currently available for your type of deal. It's sensible to try a few different rates to see how sensitive your numbers are, because a small change in the rate can make a big difference to the monthly payment.
6. Repayment type
Most buy-to-let investors choose interest-only, where you pay just the interest each month and repay the loan at the end of the term, for example by selling the property or refinancing. With a repayment mortgage, you pay off some of the loan each month, so payments are higher but you build equity as you go. Your choice changes your monthly cost significantly, so check both.
7. Mortgage term
This is the length of the mortgage, often 25 years or more. A longer term can lower a repayment mortgage's monthly cost, but you'll pay more interest overall.
A worked example
Here's an illustrative example, so you can see how the numbers fit together. These figures are for explanation only and aren't a quote.
Property price: £200,000
Deposit (25%): £50,000
Loan: £150,000
Expected rent: £1,000 a month (£12,000 a year)
Interest rate: 5%, interest-only
The annual interest would be about £7,500, or roughly £625 a month. The rent of £1,000 a month looks comfortable against that. The gross rental yield (annual rent divided by property price) works out at 6%.
However, lenders don't stop there. They usually test whether the rent covers the mortgage interest with a margin built in, often using a higher "stress" rate than the one you'll actually pay. This is called the interest coverage ratio (ICR). As a rough guide, lenders commonly ask for rent of around 125% to 145% of the interest, depending on the lender, whether you're a basic or higher rate taxpayer, and whether you're buying personally or through a limited company.
If we apply a stress rate of 5.5% to the same example, the interest would be about £8,250 a year. At 145% cover, the rent would need to be around £11,960 a year, or about £997 a month. So £1,000 a month only just passes. That's why it's worth testing your numbers with a margin for error, not just the best case.
What a calculator can tell you
A good buy to let mortgage calculator can help you:
Estimate your monthly payments on different rates and loan amounts
Understand roughly how much deposit you'll need
See how the rent compares with the mortgage cost
Work out a rough rental yield
Compare interest-only and repayment options side by side
What a calculator cannot tell you
This is just as important. A calculator can't tell you:
Whether a lender will approve you. Each lender has its own criteria for affordability, experience, credit history and property type.
Which rates and products are actually available to you. The rate you type in is an assumption, not an offer.
Your tax position. Mortgage interest relief for individual landlords is restricted, and companies are taxed differently. It's worth speaking to an accountant about how your rental income will be taxed.
The real running costs. Insurance, repairs, letting agent fees, periods without a tenant and legal compliance costs all reduce your return.
Special cases. HMOs, multi-unit blocks, ex-local authority properties, and non-standard construction are often assessed differently.
Your personal circumstances. Income, other borrowing, and your plans for the property all matter.
Tips for getting more out of the calculator
Run more than one scenario. Try a higher interest rate, lower rent and a void period to see how your numbers hold up.
Be conservative with rent. It's better to be pleasantly surprised than caught short.
Add the costs the calculator leaves out. Subtract a realistic amount for maintenance, insurance, agent fees and voids before you judge the return.
Think about your exit and your plan for the end of the term, especially if you choose interest-only.
Speak to a broker before you commit. Real lender criteria and product availability change often.
From estimate to a real plan
A calculator is a great first step, but it only gives you an estimate. A broker can look at your full situation, check the lenders' criteria and search a wide range of lenders to find a deal that fits, whether you're a first-time landlord, a portfolio investor, self-employed or buying through a limited company.
If you'd like to try the numbers yourself first, use our buy-to-let calculator. When you're ready to go further, get in touch with the team at 1st Choice Mortgages on 020 8095 9030 or at ricky@1cms.co.uk, and we'll be happy to talk it through with you.
Frequently asked questions
How accurate is a buy to let mortgage calculator? It's as accurate as the figures you enter. It gives a useful estimate, but it can't replace a lender's assessment or advice from a broker.
How much deposit do I need for a buy-to-let mortgage? Many lenders ask for around 25%, although this varies. A larger deposit can give you access to better rates.
What is rental cover (ICR)? It's the test lenders use to check that the expected rent comfortably exceeds the mortgage interest. The percentage required varies between lenders and circumstances.
Can I use a calculator if I'm buying through a limited company? Yes, but lenders' criteria and the tax treatment can differ for companies, so it's worth getting advice before you go ahead.
This article is for general information only and isn't personal advice. Figures in the example are illustrative. Most buy-to-let mortgages are not regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on your mortgage.
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