Buy-to-let is a lending category that CeMAP® tests from several angles at once: as a type of borrower in MRT1 AC3.3, as part of the market in AC5.4, as a valuation issue in AC10.3 (rental income), as a product in MRT2 AC6.3, and as an advice and tax topic in ASEW AC2.1, AC2.5, AC2.7 and AC4.4. This guide covers each angle in the order an adviser meets them. Regulation and the rental cover test are UK-wide. Property tax is not: we use the 2026/27 SDLT rates for England and Northern Ireland and note Scotland and Wales, and income tax for England, Wales and Northern Ireland. For the module overview, see the CeMAP 2 (MORT) hub; for the unit, the MRT1 unit guide.
| Buy-to-let at a glance | Detail |
|---|---|
| Regulation | Business buy-to-let: not FCA-regulated. Consumer buy-to-let: MCD Order 2015. Let to a relative: regulated mortgage contract |
| Underwriting | PRA SS13/16: rental cover (ICR) and/or income test, stressed rates |
| ICR | 125% is the industry standard minimum the PRA cites; 145% is common for higher-rate taxpayers |
| Stress rate | At least 5.5%, or a 2-point rise over five years if higher |
| Tax (2026/27) | Finance costs give a 20% tax credit (section 24); SDLT higher rates add 5 points |
What is a buy-to-let mortgage?
A buy-to-let mortgage is a loan secured on a home that the borrower lets to tenants rather than lives in, assessed mainly on the expected rent. MRT1 AC3.3 and AC5.4 test buy-to-let borrowers, and MRT2 AC6.3 lists the buy-to-let products.
Most buy-to-let mortgages are interest-only. Landlords usually plan to repay the capital from the sale of the property, and paying interest only keeps the monthly cost, and so the rental cover test, lower. Some lenders require repayment, or part repayment, for older borrowers or higher loan to value.
MRT1 AC3.3 groups buy-to-let borrowers with property investors, consumer buy-to-let borrowers and business borrowers. The differences matter:
| Borrower | Typical profile | How the loan is treated |
|---|---|---|
| Business buy-to-let | Landlord buying to let, often with other properties | Unregulated; PRA underwriting standards apply |
| Portfolio landlord | Four or more mortgaged buy-to-let properties | Unregulated; lender reviews the whole portfolio |
| Consumer buy-to-let | "Accidental" landlord letting a former home or inherited property | Regulated under the MCD Order 2015 |
| Let to a relative | Property let to a close family member | Regulated mortgage contract under MCOB |
| Limited company | Company, often a special purpose vehicle | Unregulated; directors usually give personal guarantees |
For lenders, MRT1 AC10.3 adds that rental income affects the value of the security as well as the loan's affordability.
Key fact: A buy-to-let let to the borrower's parent, child or sibling meets the 40% occupancy test through a related person, so it is a regulated mortgage contract.
Is buy-to-let regulated?
Most buy-to-let lending is not FCA-regulated, because the borrower does not live in the property. Consumer buy-to-let has been regulated since 21 March 2016 under the MCD Order 2015, and a home let to a close relative is a regulated mortgage contract.
The reason is the definition. A regulated mortgage contract needs at least 40% of the property to be used as a dwelling by the borrower or a related person. Tenants who are not related do not count, so a standard buy-to-let falls outside MCOB. Our MCOB rules guide sets out the definition in full.
Consumer buy-to-let
Consumer buy-to-let (CBTL) covers borrowers who are not acting wholly or mainly for business purposes, such as someone who inherits a house and lets it, or who lets their former home after moving. The Mortgage Credit Directive Order 2015 created a lighter regime for these loans. Firms that lend, arrange or advise on CBTL register with the FCA, and the conduct rules come from the Order rather than from MCOB.
Prudential underwriting
Even unregulated buy-to-let has underwriting standards. The PRA's supervisory statement SS13/16 sets out how PRA-regulated lenders should assess rental cover and stress rates. It governs the lender's risk, not the advice, and it applies whether or not the loan is regulated.
Exam tip: "Unregulated" means outside FCA conduct rules, not free of rules. The PRA still sets underwriting standards for buy-to-let lenders.
How do lenders test rental cover (the ICR)?
Lenders test rental cover with the interest cover ratio (ICR): monthly rent divided by monthly interest at a stressed rate. Under PRA SS13/16 the stress rate is at least 5.5%, and 125% is the industry-standard minimum ICR. Many lenders use 145% for higher-rate taxpayers.
The PRA's underwriting standards for buy-to-let set the method:
- Rent. Expected rent, verified by an independent valuer, an automated model or an existing tenancy.
- Stress rate. Likely rates over at least five years, with a minimum rise of 2 percentage points, and never less than 5.5%. The five-year look-ahead does not apply where the rate is fixed for five years or more.
- Costs and tax. Lenders must take account of letting costs, voids, repairs and the borrower's tax position, including the limit on mortgage interest relief. That is why higher-rate taxpayers often face a higher ICR.
- Personal income. Lenders may use personal income to top up the rent, but must then carry out a full income and expenditure assessment.
Worked example: rental cover
A property is valued at £260,000 and lets for £1,100 a month. The lender lends up to 75% LTV and tests at 5.5%.
- Maximum on loan to value: £260,000 × 75% = £195,000.
- At an ICR of 125%, maximum monthly interest = £1,100 ÷ 1.25 = £880, or £10,560 a year.
- Maximum loan on rent = £10,560 ÷ 5.5% = £192,000.
- At an ICR of 145%: £1,100 ÷ 1.45 = £758.62 a month, or £9,103 a year, so the maximum loan is £9,103 ÷ 5.5% = £165,517.
The rent, not the LTV, sets the limit. To borrow the full £195,000 at 125%, the rent would need to be £195,000 × 5.5% ÷ 12 × 1.25 = £1,117 a month. More rental cover drills are on our CeMAP calculations page.
Key fact: ICR = monthly rent ÷ monthly interest at the stress rate. A higher ICR or a higher stress rate both reduce the maximum loan.
How much deposit does a buy-to-let mortgage need?
A buy-to-let mortgage typically needs a larger deposit than a residential one, because lenders set lower maximum LTVs. No regulator fixes the figure. In the £260,000 example above, £1,100 rent limits the loan to £192,000, so the deposit is at least £68,000.
That pattern is common: the rental cover test often sets the deposit, not the lender's LTV limit. Two cases with the same price can need very different deposits if the rents differ, or if one borrower pays higher-rate tax and faces a 145% ICR.
| Case | Rent | ICR | Maximum loan | Minimum deposit on £260,000 |
|---|---|---|---|---|
| Basic-rate landlord | £1,100 | 125% | £192,000 (73.8% LTV) | £68,000 |
| Higher-rate landlord | £1,100 | 145% | £165,517 (63.7% LTV) | £94,483 |
| Higher rent | £1,250 | 125% | £195,000 (75% LTV cap) | £65,000 |
Product fees for buy-to-let are often a percentage of the loan rather than a flat fee, and adding them can push the LTV into a higher band. Cash for SDLT at the higher rates, legal costs and any refurbishment comes on top of the deposit. Our loan to value guide shows how bands work.
Exam tip: In a buy-to-let deposit question, run the rental cover test first. The lower of the ICR limit and the LTV limit is the maximum loan.
How is rental income taxed?
Rental income is taxed as property income at 20%, 40% or 45% in 2026/27 in England, Wales and Northern Ireland. Under section 24, individual landlords cannot deduct mortgage interest; they get a 20% basic-rate tax credit instead. ASEW AC2.7 tests this.
Worked example: section 24 (2026/27)
A higher-rate taxpayer receives £13,200 rent a year, pays £8,000 in mortgage interest and £2,000 in other allowable costs.
- Property profit for tax: £13,200 − £2,000 = £11,200. The interest is not deducted.
- Tax at 40%: £11,200 × 40% = £4,480.
- Tax credit: 20% of the lowest of finance costs (£8,000), property profit (£11,200) and adjusted total income. Here that is 20% × £8,000 = £1,600.
- Tax due: £4,480 − £1,600 = £2,880.
Under the old rules, with interest fully deducted, the profit would have been £3,200 and the tax £1,280. Section 24 costs this landlord £1,600 a year. A basic-rate taxpayer is no worse off, unless the extra profit pushes them into the higher-rate band. Companies still deduct interest as a business cost. The method is on gov.uk's guide to tax relief for residential landlords.
Purchase and sale taxes
In England and Northern Ireland, a buyer who will own more than one dwelling pays SDLT at 5 points above each band, since 31 October 2024. On a £260,000 buy-to-let: 5% × £125,000 + 7% × £125,000 + 10% × £10,000 = £6,250 + £8,750 + £1,000 = £16,000. Scotland charges an 8% Additional Dwelling Supplement on the whole price, and Wales has its own higher LTT rates. On sale, a gain is taxed at 18% or 24% for capital gains tax, reported and paid within 60 days. The full bands are on our CeMAP tax tables page.
Announced changes
Budget 2026 announced property income rates of 24%, 44% and 49% from 6 April 2027, with finance-cost relief at the property basic rate, according to the Budget 2026 overview of tax legislation and rates. As of 30 October 2026 these are announced, not law. Use the 2026/27 rates and the tax table Walbrook (LIBF) provides; Walbrook does not say which tax year applies to each exam window.
Key fact: Section 24 is a 20% tax credit, not a deduction from rental profit. It applies to individual landlords, not companies.
What is let to buy?
Let to buy is where homeowners let their current home and buy a new one to live in. It usually needs 2 mortgages: a buy-to-let remortgage on the old home, often raising the deposit, and a residential mortgage on the new one (ASEW AC2.5).
The two loans are assessed separately. The let property must pass the rental cover test on its own rent. The new residential mortgage must pass the MCOB 11.6 affordability assessment, and the lender will count any shortfall on the let property as a commitment. Our mortgage affordability guide explains that assessment.
Because the borrower has lived in the let property, a let-to-buy remortgage is often consumer buy-to-let, so the MCD Order regime applies. The buyer also owns two homes on completion of the purchase, so the SDLT higher rates usually apply to the new home. If they had sold instead, they would not.
Some borrowers ask their existing lender for consent to let instead of remortgaging. Consent is usually given for a limited period, sometimes with a higher rate or fee. Letting without consent is a breach of the mortgage terms.
Exam tip: In a let-to-buy case, check three things: the rental cover on the old home, affordability on the new one, and the SDLT higher rates on the purchase.
How are HMOs, holiday lets and limited company purchases different?
HMOs, holiday lets and limited company purchases are specialist buy-to-let cases in ASEW AC2.5 and AC4.4. Each changes the lender's assessment: an HMO by room rents, a holiday let on seasonal income, a company on its directors' guarantees. Fewer lenders offer them.
- Houses in multiple occupation (HMOs). A property let to several tenants from different households who share facilities. In England, mandatory licensing applies to HMOs let to five or more people from more than one household. Lenders often value an HMO on its rental income as well as its bricks-and-mortar value, and expect landlord experience.
- Holiday lets. Short lets to holidaymakers, assessed on expected seasonal income rather than an assured tenancy, often using projections from a letting agent. Lenders apply their own rental cover test, often stricter, and may restrict personal use.
- Limited company buy-to-let. The company, often a special purpose vehicle set up only to hold property, borrows; directors usually give personal guarantees. The company deducts mortgage interest as a business cost, which is why section 24 drives many landlords to incorporate. SDLT higher rates apply to any residential purchase by a company, and a company buying a dwelling for over £500,000 can pay 17% on the whole price unless a relief, such as for a property rental business, applies.
Moving an existing personal portfolio into a company is a sale for tax purposes, so it can trigger capital gains tax and SDLT. Advisers should refer the tax question to a specialist. Practise these cases with the ASEW specialist lending drill and our CeMAP 3 case studies guide.
Key fact: A limited company landlord deducts mortgage interest in full; an individual landlord gets only the 20% section 24 credit.
Your buy-to-let mortgage study plan
Your buy-to-let mortgage study plan takes about 6 hours: learn the regulated, consumer and business categories first, then practise the ICR and deposit calculation until it takes under 90 seconds, then the section 24 and SDLT examples, ending with MRT1 mock 1.
| Step | Focus | Practice |
|---|---|---|
| 1 | Regulated vs consumer vs business buy-to-let | MRT1 borrowers drill |
| 2 | Market context and PRA rental cover | MRT1 market context drill |
| 3 | ICR, deposit, section 24 and SDLT calculations | Redo each worked example with a new rent |
| 4 | Let to buy, HMOs and companies in case studies | ASEW specialist lending drill |
| 5 | Timed check | Free MRT1 mock 1 |
Start with the free MRT1 diagnostic, 20 questions in 30 minutes. Our free study notes cover the MRT1 and ASEW topics for revision.
Mocks 2 to 10 and the topic drills are part of Pro: £6.99 a week, £11.99 a month or £22.99 for three months, for all five units. Our readiness rule is three mocks in a row at 85% or more, with every topic at 80% or more. It is a guide, and there is no pass guarantee.
10 free MRT1 practice questions with answers
Try each one, then open the answer. For a timed experience use the free mock exam.
1. Victor is a high net worth mortgage customer with evidence of his status. He wants a remortgage, mainly to consolidate debts, on an execution-only basis. May the firm proceed?
- A. No, unless he first takes advice and then rejects it
- B. Yes, because the debt consolidation ban does not apply to high net worth customers
- C. Yes, but only if the remortgage is with his existing lender
- D. No, because debt consolidation can never be arranged on an execution-only basis
Show answer
B. Yes, because the debt consolidation ban does not apply to high net worth customers
MCOB 4.8A.7R bans execution-only sales where the main purpose is debt consolidation, but MCOB 4.8A.9R says that ban does not apply to a high net worth mortgage customer. The firm should first have evidence under MCOB 1.2.9CR.
2. Why do eligible counterparties receive less regulatory protection than retail customers?
- A. They are only ever borrowers, never lenders, in financial transactions
- B. They always borrow only from overseas lenders outside the FCA's remit
- C. They are institutions treated as able to look after their own interests
- D. They have opted out of all regulation by signing a written waiver
Show answer
C. They are institutions treated as able to look after their own interests
Eligible counterparties are professional institutions such as banks, insurers and governments (COBS 3.6.2R). They are regarded as the most expert class of client and so receive the lowest level of conduct protection.
3. A firm's staff tell customers that taking advice will 'slow things down' and suggest they go execution-only. Which MCOB rule does this breach?
- A. MCOB 4.8A.5R, which bans encouraging customers to opt out of advice
- B. MCOB 11.6.24R, which requires an annual review of the lending policy
- C. MCOB 6A.3.4R, which sets the minimum length of the reflection period
- D. MCOB 7.5.1R, which requires an annual statement to be sent
Show answer
A. MCOB 4.8A.5R, which bans encouraging customers to opt out of advice
MCOB 4.8A.5R says a firm must not encourage a customer to opt out of receiving advice, or to reject advice. MCOB 4.8A.6G adds that firms should not steer customers into execution-only sales.
4. Mia has a £100,000 interest-only mortgage at 4%. She extends the term from 20 to 30 years at the same rate. What happens?
- A. The monthly payment rises, because the interest is spread over more years
- B. The monthly payment falls, because the capital is spread over more years
- C. The monthly payment stays at £333.33, but she pays interest for ten more years
- D. The monthly payment stays the same, and the total interest falls
Show answer
C. The monthly payment stays at £333.33, but she pays interest for ten more years
On interest-only, the payment is the interest alone: £100,000 × 4% ÷ 12 = £333.33, whatever the term. A longer term means paying interest for ten more years, and the capital is still due at the end.
5. A lender is weighing two flats of equal value. Flat A is in a low-rise block with a long lease. Flat B has a 55-year lease. Why does the lender prefer Flat A?
- A. Flat B's shorter lease makes it a weaker, declining security
- B. Flat A will automatically become freehold after ten years
- C. Flat B cannot be insured because of its lease length
- D. Flat A attracts a lower rate of stamp duty
Show answer
A. Flat B's shorter lease makes it a weaker, declining security
A lease is a wasting asset: as the unexpired term falls, value and saleability decline, and the cost of extending rises. A lender wants security that holds its value over the mortgage term, so a long lease is stronger security than a short one.
6. Under the Consumer Rights Act 2015, what standard must a surveyor meet when providing a RICS Home Survey to a consumer?
- A. The surveyor must guarantee the property has no defects
- B. The service must be performed with reasonable care and skill
- C. The survey must be completed within seven days
- D. The surveyor must match the lender's valuation
Show answer
B. The service must be performed with reasonable care and skill
Section 49 of the Consumer Rights Act 2015 implies a term into every contract for a trader to supply a service that it will be performed with reasonable care and skill. A surveyor does not guarantee that a property is defect-free.
7. Kai wins an unconditional auction, but his mortgage lender cannot complete within the 20 business days allowed. Which type of finance is commonly used to complete on time?
- A. A personal loan secured on his car for the balance
- B. A credit card cash advance for the full purchase price
- C. A short-term bridging loan, later refinanced by a mortgage
- D. A lifetime mortgage on the auction property itself
Show answer
C. A short-term bridging loan, later refinanced by a mortgage
Bridging finance can be arranged quickly to complete an auction purchase within a short deadline, with a term mortgage taken later to repay it. The buyer needs a credible exit strategy, as MCOB 4.7A.12R requires for regulated bridging loans.
8. Bank Rate is 3.75%. Josie has a £200,000 interest-only tracker mortgage at Bank Rate plus 1%. What is her monthly interest payment?
- A. £9,500.00
- B. £791.67
- C. £625.00
- D. £166.67
Show answer
B. £791.67
Her rate is 3.75% + 1% = 4.75%. Annual interest is £200,000 × 4.75% = £9,500, so the monthly payment is £9,500 ÷ 12 = £791.67. A tracker payment changes whenever Bank Rate changes.
9. A lender has no previous relationship with Ella, who says she has net assets of £4 million. What must it obtain before treating her as a high net worth mortgage customer?
- A. A signed declaration from Ella herself confirming that her net assets exceed £3 million
- B. A signed statement from the lender's in-house accountant confirming her net assets
- C. A valuation report showing that the property she is buying is worth over £3 million
- D. A signed statement from her own qualified professional adviser confirming her status for a stated period
Show answer
D. A signed statement from her own qualified professional adviser confirming her status for a stated period
MCOB 1.2.9CR allows HNW treatment only where the firm already holds evidence from an existing business relationship, or has a written statement confirming the status. The statement must give a validity period covering the date of the contract and be signed by a suitably qualified professional adviser who is not an associate of the firm or the customer.
10. A lender takes an assignment of Ravi's life assurance policy as additional security for his interest-only mortgage. What does the lender gain?
- A. Ownership of the property free of Ravi's interest
- B. The right to increase the premiums without Ravi's consent
- C. The right to change the life assured on the policy
- D. The right to receive the policy proceeds to repay the loan
Show answer
D. The right to receive the policy proceeds to repay the loan
By assignment the lender becomes entitled to the policy proceeds, which it applies to reduce or repay the debt. Assignment of life policies was common with endowment mortgages and is still used for some interest-only and business lending.
Frequently asked questions
+Is buy-to-let regulated by the FCA?
Most buy-to-let lending is not regulated by the FCA, because the borrower does not live in the property. Two exceptions matter: a property let to a close family member is a regulated mortgage contract, and consumer buy-to-let is regulated under the Mortgage Credit Directive Order 2015.
+What is consumer buy-to-let?
Consumer buy-to-let is buy-to-let lending to someone who did not set out to run a letting business, such as a person letting a former home or an inherited property. It has been regulated since 21 March 2016 under the Mortgage Credit Directive Order 2015, not MCOB.
+How much rent do I need for a buy-to-let mortgage?
Lenders set their own test. A common approach is rent of at least 125% of the interest at a stressed rate of 5.5%, so a £195,000 loan needs about £1,117 a month. Many lenders ask 145% for higher-rate taxpayers, which needs more rent.
+Can I get a buy-to-let mortgage as a first-time buyer?
Some lenders accept first-time buyers or first-time landlords, often with stricter criteria such as a larger deposit or a minimum personal income. It is lender policy, not a regulatory rule, and many lenders require the applicant to own a home already.
+What is the stamp duty surcharge on buy-to-let?
In England and Northern Ireland, buyers who will own more than one dwelling pay SDLT at 5 percentage points above each standard rate, since 31 October 2024. Scotland charges an 8% Additional Dwelling Supplement on the whole price, and Wales has separate higher LTT rates.
+Can I let my home without a buy-to-let mortgage?
Only with the lender's permission. Letting a home on a residential mortgage without consent breaches the mortgage terms. Lenders may give consent to let for a period, often with a higher rate, or the borrower can remortgage to buy-to-let.
Keep reading
- CeMAP MRT1: Mortgage Law, Practice and ApplicationCeMAP MRT1 mock exam guide: the 50-question format, all 11 learning outcomes in order, worked SDLT example, common traps and a four-week plan.
- CeMAP 2: The Mortgages Module and Its Two Unit Exams, MRT1 and MRT2CeMAP 2 is the MORT module: MRT1 (50 questions, pass 35) and MRT2 (40 questions, pass 28), 1 hour each. Syllabus, old units, costs and free mock exams.
- CeMAP Calculations: Every Formula You Need, With Worked ExamplesCeMAP calculations explained: LTV, loan to income, SDLT, LBTT and LTT, ERCs, buy-to-let ICR, repayment costs and sums assured, each with a worked example.
- CeMAP Tax Tables for 2026/27: Income Tax, Property Tax and AllowancesCeMAP tax tables for 2026/27: income tax, NI, SDLT, LBTT, LTT, ISA, pension, CGT and IHT figures plus FSCS and FOS limits, each with its official source.
- Loan to Value Explained: How to Calculate LTV for CeMAPLoan to value (LTV) for CeMAP: the formula, worked purchase, further advance and remortgage examples, LTV vs LTI, and the higher lending charge explained.
- MCOB Explained: The FCA Mortgage Rules You Need for CeMAPMCOB rules for CeMAP: each MCOB chapter mapped to MRT1, MRT2 and ASEW, with the ESIS, MCOB 11.6 affordability, MCOB 13 arrears and the Consumer Duty.