When planning to purchase an investment property, selecting the right finance option is an important step. This guide explains how investment mortgages work, the main types of loans available for investment properties, how lenders review applications, and how to find a suitable deal for your investment mortgage.
What types of mortgages are there for investment properties?
There are several types of investment property mortgages available in the UK. The most suitable option will depend on how you intend to use the property and your longer-term investment plans.
Buy-to-let (BTL) mortgages
Buy-to-let mortgages are the most common form of investment mortgage. They are designed for landlords who are purchasing residential property to rent out to long-term tenants.
Buy-to-let mortgage lenders will usually review your:
- Expected rental income
- Deposit size
- Landlord experience
- Personal income and credit profile
- Existing property portfolio, where relevant
Most buy-to-let mortgages require a deposit of at least 15% to 25%. Some lenders may ask for a larger deposit depending on the property type, your experience, or the overall risk of the investment.
Commercial investment mortgages
Commercial mortgages are usually arranged on a bespoke basis. They are used for investment properties such as:
- Shops and retail units
- Offices
- Warehouses
- Industrial premises
- Restaurants, hotels, or other hospitality venues
These mortgages are usually assessed using the property’s rental income, tenant quality, lease terms, and the overall strength of the investment. Commercial investment mortgages are not normally used for residential letting.
Mixed-use or semi-commercial mortgages
Mixed-use mortgages are designed for properties that include both residential and commercial space, such as:
- Shops with a flat above
- Pubs with owner accommodation
- Commercial premises with residential units attached
These properties can be more difficult to value and finance with an investment loan, so the number of available lenders may be more limited.
Holiday let mortgages
Holiday let mortgages are intended for investment properties rented out on a short-term basis, including through platforms such as Airbnb or holiday letting agencies.
These investment mortgages often come with strict rules on how many weeks or months the property can be let each year. Lenders will usually assess applications using projected seasonal rental income, local demand, and expected occupancy levels.
Limited company investment mortgages
Some investors choose to purchase property through a limited company or Special Purpose Vehicle (SPV), rather than in their personal name.
Limited company buy-to-let mortgages are often used by portfolio landlords and higher-rate taxpayers because of the possible tax treatment of mortgage interest and profits.
However, lending criteria, deposit requirements, and interest rates may differ from standard buy-to-let mortgages. Lenders will usually assess the company structure as well as the directors involved in the investment.
Fast property finance
Some investors use buy-to-sell mortgages or short-term bridging loans to purchase property or land quickly, or to fund refurbishment work before refinancing onto a longer-term mortgage.
This type of finance is often used for:
- Property flipping
- Auction finance purchases
- Major renovation projects
- Unmortgageable or uninhabitable properties
These finance options are usually more expensive than some other investment property mortgages, but they may provide greater speed and flexibility.
Lending criteria for investment mortgages
Investment mortgage lending criteria can differ widely depending on the property type and the lender. However, most lenders will consider several key factors when reviewing an application.
Deposit requirements
Investment property mortgage lenders usually ask for larger deposits than those required for standard residential mortgages. Deposits of 20% to 40% are common, depending on:
- The type of investment property
- Your property investment experience
- Projected rental income
- Current market conditions
Rental affordability
For buy-to-let and commercial investment properties, lenders will usually check whether the expected rental income is high enough to comfortably cover the mortgage repayments.
This is often assessed through rental stress testing calculations.
Credit profile
Lenders may review both your personal and business credit history, especially if you are borrowing through a limited company or applying for commercial finance.
Investment property experience
Some lenders prefer applicants with previous landlord or investment experience. This is particularly common for larger portfolios or more complex investment properties.
Type of investment property
Some investment properties can be more difficult to finance, including:
- Non-standard construction properties
- Properties located above commercial premises
- HMOs, or houses in multiple occupation
- Semi-commercial buildings
- Properties that need major refurbishment
How to get an investment mortgage
Applying for an investment mortgage is usually similar to applying for other types of property finance. The exact steps will depend on the type of investment mortgage you need, but the process typically includes the following stages.
Speak with a broker
Investment mortgage lenders can differ widely in the property types they will finance, the loan-to-value (LTV) limits they offer, and the way they assess affordability. For this reason, it is often useful to speak with an experienced mortgage broker at the start.
Compare your options
A broker can help you find lenders that match your investment property type, personal circumstances, and financial goals. They can then compare investment property mortgage lenders across the market to identify suitable products, competitive rates, and loans with terms that fit your needs.
Submit your application
Once you have chosen a lender, the application will usually include affordability checks, a property valuation, and underwriting.
Depending on the investment mortgage type, the lender may also carry out rental stress testing calculations, review business plans, assess refurbishment costs, or consider projected investment returns before issuing a formal mortgage offer.
Investment property mortgage lenders
Here are some examples of UK lenders that are active in the investment mortgage market, including details on how their products and lending criteria may work.
The Mortgage Works
The Mortgage Works is part of Nationwide Building Society and focuses on buy-to-let lending. It offers investment property mortgages with loan-to-value (LTV) options of up to 80%.
It also provides limited company mortgages for first-time landlords, experienced landlords, and portfolio landlords, with a 25% deposit requirement.
Shawbrook Bank
Shawbrook Bank provides commercial investment mortgages from £150,000 to £35 million. Terms can range from 3 to 25 years, with fixed-rate options available over 2, 3, 5, and 10 years.
Shawbrook also offers interest-only investment mortgages and may lend up to 75% LTV on many commercial and semi-commercial properties.
Santander
Santander offers buy-to-let mortgages to both first-time landlords and existing property investors, but these are only available through mortgage brokers.
Its current investment mortgage criteria include a maximum LTV of 75% on standard buy-to-let properties, a minimum income requirement of £25,000 for at least one applicant, and mortgage terms of up to 25 years.
Other types of finance for a property investment
In some cases, an investment mortgage may not be the only option or the most suitable choice. Other forms of property investment finance that you may want to discuss with your broker include the following.
Bridging loans
Bridging loans can be useful for short-term purchases, auction purchases, or refurbishment projects where speed is important.
Development finance
Development finance is designed for larger renovation projects, property conversions, or new-build developments.
Second charge mortgages
A second charge mortgage allows you to borrow against the equity in an existing property without replacing your current mortgage.
Commercial finance
Commercial finance may be suitable for larger investment projects or business-related property purchases.
Remortgaging to release equity
If you already own property, whether it is a residential property or part of an existing commercial portfolio, refinancing may allow you to release equity and use that capital to finance your next investment.
The most suitable type of finance will usually depend on your investment strategy, timescale, and the property involved.
Frequently Asked Questions
Investment mortgage rates are generally a little higher than standard residential mortgage rates because lenders usually view investment properties as higher risk.
The rate you are offered will depend on factors such as:
Deposit size
Property type
Projected rental income
Your experience as a property investor
The lender’s current criteria
Specialist or commercial investment properties may also come with higher rates than standard residential buy-to-let mortgages.