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Interest only buy to let mortgages

Why most landlords pay only the interest, what it costs compared with repayment, and how you pay the loan back at the end.

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  • Interest only buy to let

The short answer

With an interest-only mortgage you pay just the interest each month, so the payment is lower and the cash flow better. The loan itself stays the same and must be repaid at the end of the term, usually by selling the property or refinancing.

A worked example

You borrow £90,000 at 5% over 25 years.

  • Interest only: £375 a month. After 25 years you have paid £112,500 in interest and still owe £90,000.
  • Repayment: £526.13 a month, £151.13 more. After 25 years you have paid about £67,839 in interest and own the property outright.

The interest-only option leaves an extra £151 a month in your pocket, but you pay more interest overall and still need a plan to clear the £90,000. Rates are an example. Run your own deal in the deal analyser.

Why landlords choose interest only

  • Cash flow. Lower payments leave more room for repairs, empty months and the next deposit.
  • Lenders test the rent on the interest, so the loan size is the same either way.
  • Tax. Only the interest counts towards finance costs. Repaying capital comes out of taxed income.

How you repay at the end

  • Sell the property and repay the loan from the sale.
  • Refinance onto a new mortgage, if you are still within the lender's age limits.
  • Overpay over time, or switch part of the loan to repayment later. Most deals let you overpay up to 10% a year without a charge.

Lenders will ask how you plan to repay. Selling the property is usually accepted for buy-to-let, unlike on your own home.

Part and part

Some lenders let you split the loan: part interest only, part repayment. It is a middle way that reduces the debt over time while keeping payments lower than full repayment.

Is it regulated?

Interest-only buy-to-let lending for an investment property is usually not regulated by the FCA, so we can talk to you about it. If you or a family member will live in the property, it is regulated and we cannot help with that yet.

Common questions

Are most buy-to-let mortgages interest only?

Yes. Most landlords choose interest only for the lower payments, and most buy-to-let lenders offer it as standard.

Can I switch from interest only to repayment?

Usually yes, either during the deal with your lender's agreement or when you remortgage. Your payments will rise.

What happens if the property is worth less than the loan at the end?

You would need to make up the difference from savings, or refinance if a lender will agree. Paying some capital off over the term reduces that risk.