Deposit Yield Impact
The size of your deposit has a profound effect on both the yield on equity and the monthly cash flow from a buy-to-let investment. A larger deposit means a smaller mortgage (improving cash flow and net yield), but reduces leverage (lowering cash-on-cash return). This calculator shows you how yield and cash flow change at different deposit levels, helping you identify the optimal capital structure for a given property.
Why this matters
The deposit decision is one of the most consequential in property investment. Putting in too little creates unsustainable cash flows; too much ties up capital that could be deployed elsewhere.
Key points
- Higher deposit = lower mortgage = better cash flow but less leverage
- Cash-on-cash return typically peaks somewhere between 25% and 40% deposit depending on yield and rates
- Maximum LTV for buy-to-let is typically 75–80% (25–20% minimum deposit)
- Lenders may offer better rates for lower LTV deals — reducing the mortgage cost
- Using minimum deposit maximises portfolio size but creates more risk if values fall
- Tax efficiency can also affect the optimal deposit level — take advice if you are close to rate band thresholds
Frequently asked questions
What is the minimum deposit for a buy-to-let mortgage?
Most lenders require a minimum 25% deposit for a buy-to-let mortgage, though some offer products at 20% LTV (80% LTV). Rates improve significantly at 25% and 40% LTV thresholds. A small number of specialist lenders offer 85% LTV, but with significantly higher rates.
Does a larger deposit always mean better returns?
Not necessarily — a larger deposit reduces leverage. If the property is generating strong returns, leverage amplifies those returns. The optimal deposit depends on the relationship between rental yield, mortgage rate, and capital growth expectations.
Is it better to put more deposit on one property or split it across two?
This is a fundamental portfolio strategy question. Two properties at 75% LTV each give more diversification and higher leverage than one property with 50% equity. However, two properties also double the management burden and exposure to individual property risks.
How does deposit affect mortgage eligibility?
Lenders typically use the same interest coverage ratio test regardless of deposit size — rental income must cover mortgage at a stressed rate. A larger deposit reduces the loan amount, making it easier to pass the ICR test for properties with modest rents.