Lenders size a BTL mortgage on an interest-coverage ratio — the rent must exceed the mortgage interest by a stress-tested margin (commonly 125%–145% at a notional rate) — and usually require a larger deposit (typically 25%+) than a residential loan. Many BTL loans are interest-only, with the capital repaid on sale or refinance.
Tax treatment is less generous than it was: mortgage-interest relief for individual landlords is now a basic-rate tax credit rather than a full deduction, the 5% SDLT additional-property surcharge applies on purchase, and gains on sale fall within CGT. Some investors hold through a company to restore interest deductibility, accepting ATED/corporate complexity in return.
A realistic BTL appraisal nets off void periods, management and maintenance, service charge/ground rent and tax — gross yield headlines rarely survive contact with the real numbers.