How Much Can I Borrow for Investment Property?

A common question that we hear from new investors is, “how much can I actually borrow for an investment property?”. Unfortunately, there isn’t one definitive answer to this question; it’s a complex process, rather than just a simple multiplier of your income. Lenders will look at a wide range of key factors, including expected rental income, your personal financial situation, and the size of your deposit, to determine how much you can borrow for an investment property. 

The amount you can borrow has a direct impact on what type of property you can consider, the location you can target, and the long-term returns you might achieve. If you’re wondering “how much can I borrow for investment property?”, the answer depends on several key criteria that lenders assess. Understanding these core principles is crucial before you start the application process

What are The Core Principles of Buy-to-Let Mortgages?

Buy-to-let properties in particular have a different set of rules than residential mortgages, and understanding these key principles is important when investing in a property to avoid unexpected charges or financial shortfalls.

• Rental Coverage Ratio (ICR): ICR measures whether the expected rental income will cover the mortgage interest payments, typically requiring 125–145% coverage. For example, if the monthly interest payment is £1,000, lenders would want the rental income to be at least £1,250–£1,450.
• Personal Affordability: Lenders will assess your personal finances, which can include salary, any debts and monthly outgoings to make sure you can cover the mortgage even during vacant times.
• Loan-to-value (LTV): Buy-to-let mortgages typically require a larger deposit, often 25% or more. LTV is the percentage of the property’s value you are borrowing, which means a larger deposit can often mean better rates of interest.

How Can I Increase My Borrowing Capacity?

There are a number of steps you can take to improve your borrowing capacity and further your understanding of the process. 

Here are some actionable steps you can take…

• Increase Your Deposit: This may seem an obvious step, but increasing your deposit is the most direct way to bolster your borrowing power as it reduces the lender’s risk. Even a modest increase in your deposit can open doors to more favourable lending options. For example, shifting from a 25% deposit to 30% may reduce the interest rate bracket you fall into, lowering monthly costs and freeing up capital for future investments.
• Improve Your Credit Score: Having a strong credit history demonstrates reliability in the eyes of lenders, which will give you a wider choice of lenders and preferential rates. Improving your credit score isn’t an overnight process, but small, consistent steps can make a real difference. Paying bills on time, reducing credit utilisation, and correcting any inaccuracies on your credit file all signal reliability to lenders, giving you access to a wider pool of mortgage products.
• Minimise Your Personal Debt: Reducing your credit card balances and loans can impact a lender’s affordability assessment, which makes it easier for them to approve larger mortgages. Lenders will always weigh your existing financial commitments against your income. Clearing a car loan or significantly reducing credit card balances can improve your affordability profile, often resulting in a noticeable boost in how much you can borrow.
• Work with a Specialist Mortgage Broker: Speaking with a specialist mortgage broker who understands the BTL market and can access a wider range of deals than a single lender. This means more options, potentially better rates, and guidance tailored to your investment strategy.

What is the Role of a Mortgage Calculator

Online mortgage calculators are inescapable; there are plenty to choose from, and they can offer a good starting point if you’re trying to estimate how much you can borrow for investment property. They should be used with a bit of hesitation, as they don’t provide a definitive answer –  they can often overlook interest rate changes, lender-specific criteria, and personal affordability factors.

One of the biggest challenges with online calculators is that they often present an overly simplified picture. They rarely account for the nuances of property type, location, or a lender’s specific stress-testing rules. This can leave investors with a false sense of security. By contrast, an Agreement in Principle not only reflects a lender’s real criteria but also provides a powerful tool when making offers, as it demonstrates to sellers that you are a serious and qualified buyer.

If you are looking for a more precise figure, then an agreement in principle (AIP) is essential. An AIP is a document from a lender that indicates how much they would be willing to lend you based on your financial circumstances, giving you a clearer idea of your borrowing capacity before you start house hunting. 

To get an AIP, you must apply with a lender or mortgage broker, providing personal information like income, outgoings, and address history. This process usually involves a soft credit check. You can apply online, over the phone, or through a broker.

Take Control of How Much You Can Borrow for Investment Property

While borrowing for a buy-to-let property can seem complex, by understanding the key factors and taking the right steps, you can make the process manageable. Expert guidance helps you understand exactly what you can borrow and how to increase your borrowing capacity.

For a personalised assessment and tailored advice on your investment property plans, contact Centrick Invest today to see exactly how much you can borrow for investment property, and make informed investment decisions with confidence.