Interest-only vs repayment
Most buy-to-let mortgages in the UK are interest-only: your monthly payment only covers the interest, so the loan amount itself stays the same and needs to be repaid separately later, typically by selling the property or remortgaging. A repayment mortgage costs more each month, since part of every payment reduces the balance, but you gradually own the property outright by the end of the term. Use the toggle in the calculator above to compare either approach for your own figures.
The lender affordability stress test
UK lenders are required to check that a property's rental income would cover a notional, stress-tested mortgage payment, not just your actual monthly payment. This follows underwriting expectations set out by the Prudential Regulation Authority in 2017: lenders commonly use a stress rate of around 5.5%, and require rent to be at least 125% of the resulting notional interest for basic-rate taxpayers and limited companies, or 145% for higher-rate taxpayers.
Because the stress rate is usually higher than your actual pay rate, a mortgage can comfortably clear the stress test while still leaving a tight, or even negative, real monthly cash flow once your actual mortgage payment and other costs are taken into account, as the worked examples below show. Both the stress rate and the required percentage vary by lender, which is why they're adjustable in the calculator above rather than fixed.
Why the required coverage differs by tax status
Since April 2020, individual landlords can no longer deduct mortgage interest from their rental income before working out their tax bill; instead, they receive a flat 20% tax credit on their finance costs. This affects higher-rate taxpayers more, since the credit doesn't fully offset the interest cost at their higher tax rate, which is why lenders commonly ask for more rental headroom, 145% rather than 125%, from borrowers who'll be taxed at the higher rate. Landlords buying through a limited company aren't affected by this rule and are usually assessed at the lower requirement instead.
Example calculations
These worked examples come straight from the calculator above, so the figures match exactly what you'd see entering the same numbers yourself.
Interest-only, clears the stress test
£250,000 property · £1,200/mo rent
- Net cash flow
- £298
- Gross yield
- 5.8%
Clears the stress test
Repayment, passes stress test, tight cash flow
£300,000 property · £1,400/mo rent
- Net cash flow
- -£103
- Gross yield
- 5.6%
Clears the stress test
Doesn't clear the stress test
£250,000 property · £1,000/mo rent
- Net cash flow
- -£17
- Gross yield
- 4.8%
Doesn't clear the stress test
Frequently asked questions
What's the difference between interest-only and repayment for buy-to-let?
With an interest-only mortgage, your monthly payment only covers the interest, so the original loan amount stays the same and needs to be repaid separately, usually by selling the property or remortgaging. With a repayment mortgage, each payment also reduces the balance, so you gradually pay off the loan and own the property outright by the end of the term. Most buy-to-let mortgages in the UK are interest-only, since landlords are typically running the property as an investment rather than aiming to own it debt-free by a set date, but repayment is available too.
What is the buy-to-let mortgage stress test?
It's an affordability check lenders are required to carry out, based on Bank of England / PRA underwriting expectations introduced in 2017. Instead of checking whether your rent covers your actual mortgage payment, lenders check whether it would cover a notional, higher stress-tested payment, commonly using a rate of around 5.5% and requiring rent to be at least 125% of that notional interest (or 145% for higher-rate taxpayers). This protects against a scenario where rates rise or a tenant leaves. Both the stress rate and required percentage vary by lender, which is why this calculator lets you adjust them.
Why does the interest coverage ratio differ for higher-rate taxpayers?
Since April 2020, landlords who own property in their personal name can no longer deduct mortgage interest from their rental income before working out their tax bill; instead, they get a flat 20% tax credit. This hits higher-rate taxpayers harder, since the tax credit doesn't fully offset the interest cost at their higher tax rate, so lenders typically require more rental headroom (commonly 145% instead of 125%) to compensate. Landlords buying through a limited company aren't affected by this rule and are usually assessed at the lower 125% requirement instead.
What counts as a good rental yield?
It varies a lot by area and property type, but as a rough guide, gross yields (rental income before costs, as a percentage of property value) below around 5% are often considered low for a buy-to-let investment, while yields above 7-8% are generally considered strong, though they can also signal a higher-risk area. Gross yield doesn't account for your mortgage, void periods, maintenance or tax, so it's a starting comparison point rather than a full picture of profitability; this calculator's net monthly cash flow figure gives you a more complete view.
Can I get a buy-to-let mortgage with no rental income yet?
Most lenders base their affordability assessment on the expected market rent for the property, often confirmed by a surveyor as part of the valuation, rather than requiring you to already have a tenant in place. If you're buying to let for the first time, use a realistic estimate of achievable local rent, ideally checked against similar properties actually being let nearby, rather than an optimistic guess.
Do I need a bigger deposit for buy-to-let than a residential mortgage?
Usually, yes. Most buy-to-let mortgages cap borrowing at around 75% loan-to-value, meaning a deposit of at least 25%, compared with residential mortgages which can sometimes go up to 90-95% loan-to-value. Some specialist lenders offer higher loan-to-value buy-to-let products, but rates are typically less competitive than at 75% or below.
Does this calculator account for tax on rental income?
No. It shows gross rental income against your mortgage and other costs, not your after-tax position. Rental profit is subject to Income Tax (or Corporation Tax if held through a limited company), and the rules around what you can deduct, especially mortgage interest, changed significantly from 2017 to 2020 for personally-held property. For an accurate picture of your tax liability, use HMRC's guidance or speak to an accountant familiar with landlord taxation.
Methodology and assumptions
This calculator assumes:
- A standard fixed-rate mortgage, using the same amortization formula used across UK lending for the repayment mode.
- The stress test follows the common industry convention (a notional stress rate and a required interest coverage ratio), not a single fixed government rule. Every lender sets its own figures.
- Net monthly cash flow doesn't include one-off costs like Stamp Duty, valuation or legal fees, or an allowance for void periods between tenants.
- Rental income and tax are shown gross; this calculator doesn't model Income Tax or Corporation Tax on rental profit.
- All figures are rounded to the nearest penny.
Sources
This calculator is based on general guidance about how buy-to-let mortgages and landlord taxation work, plus the widely-used industry stress test convention, not a single published government rate table:
More UK calculators
See all →Salary sacrifice
See how sacrificing salary for a pension or similar benefit affects your take-home pay, Income Tax and National Insurance.
Salary sacrifice pension
A pension-only version of the salary sacrifice calculator: see the tax and National Insurance saving from sacrificing salary into your workplace pension.
Take-home pay
Enter your salary, paid annually, monthly, four-weekly or weekly, and see your Income Tax, National Insurance and net pay.
Hourly wage
Convert an hourly rate into weekly, monthly and annual take-home pay, and check it against the National Minimum Wage.
Adjusted net income
Work out your adjusted net income, and what it means for your Personal Allowance taper and the High Income Child Benefit Charge.
Salary exchange
Salary exchange is another name for salary sacrifice: see the tax and National Insurance saving from exchanging salary for a pension contribution.
Salary sacrifice car
See the real Income Tax, National Insurance and Benefit-in-Kind cost of an electric or low-emission car salary sacrifice scheme.
Loan overpayment
See how much interest you could save, and how much sooner you'd be debt-free, by overpaying a loan or mortgage.
Equity release
See a broad illustrative estimate of how much you could release from your home, and how a lifetime mortgage balance grows as interest rolls up.
Shared ownership
See the monthly mortgage, rent and service charge cost of buying a share of a home through Shared Ownership.
Self build
Plan your own stage drawdown schedule and see the interest-only cost during the build, plus the mortgage payment after it converts to a standard repayment mortgage.
Part-time salary
Convert a full-time equivalent salary into a pro-rata part-time salary based on your hours, and see your part-time take-home pay after tax.
Salary increase
See how a pay rise affects your take-home pay after Income Tax and National Insurance. Enter a percentage, a £ amount, or your new salary.
Corporation tax
Work out UK Corporation Tax on your limited company's profit, including Marginal Relief between the Small Profits Rate and Main Rate.
Gross profit
Work out your gross profit and gross profit margin from revenue and cost of goods sold.
Rent affordability
See what percentage of your take-home pay a rent goes on, checked against the commonly-cited 30% affordability threshold.
Land Registry fees
Look up the HM Land Registry registration fee for buying, transferring or remortgaging a property, for both paper and electronic applications.
Rental income tax
Work out Income Tax on your rental profit, including the £1,000 Property Allowance and the 20% mortgage interest tax reduction.
Land transaction tax
Work out Stamp Duty Land Tax (England & NI), Land Transaction Tax (Wales), or Land and Buildings Transaction Tax (Scotland) on a property purchase.
Company car tax
Work out the Benefit-in-Kind tax on a company car, and how much it reduces your take-home pay — no salary sacrifice required.
Pension withdrawal tax
See how much tax you'll pay taking money out of your pension, including the 25% tax-free lump sum and emergency tax.
Pension carry forward
Work out how much unused Annual Allowance from the last 3 tax years you can carry forward for a bigger pension contribution this year.
Self-employed tax
Work out Income Tax, Class 4 and Class 2 National Insurance on your self-employment profit, including the £1,000 Trading Allowance.
London taxi fare
Estimate a London black cab fare range using TfL's own published typical fares, for your journey distance, tariff and time of day.
NHS pay
See your NHS take-home pay by Agenda for Change band and pay point, including London weighting and NHS Pension contributions, for all four UK nations.
NHS annual leave
Work out your NHS annual leave entitlement by length of service, pro-rated for part-time hours, for all four UK nations.