Updated: December 10, 2021

Interest-Only Buy-to-Let Mortgages

Looking for an interest only buy-to-let mortgage? How does it compare to alternatives? Read through our guide to find out all you need about getting one.

Get Started
Ask Us A Question

Ask us a question

We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Buy-To-Let mortgages. Ask us a question and we'll get the best expert to help.

FCA Logo
1 of 3
£
£
£
2 of 3
3 of 3 Send!

No impact on your credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: December 10, 2021

Understanding how an interest-only mortgage works, as well as how it differs from a capital repayment one can help you make a clearer decision about what type of home loan would be most suitable for your buy-to-let (BTL) property.

By following this guide, you’ll be able to make a more informed choice about interest only BTL mortgages, weighing up all the pros and cons before making your decision.

What is an interest only buy-to-let mortgage?

An interest-only buy-to-let mortgage is a type of mortgage you can use to purchase an investment property that you intend to let out to tenants. With this specific type of buy-to-let mortgage, your monthly payments would usually only consist of interest charges.

The amount you borrow to buy the property is called the capital balance and this is repaid as one lump sum at the end of the mortgage term, which might range anywhere between 5-40 years, depending on the lender and the length of agreement you’d like to apply for.

Most landlords prefer to use interest-only mortgages for their buy-to-let properties, rather than repayment mortgages, mainly because it helps them keep their fixed monthly costs down.

There are mortgage brokers who specialise in interest-only buy-to-let mortgages and speaking to one of them before you apply can dramatically improve your chances of landing a good deal.

Are all buy-to-let mortgages interest only?

No, but the majority of them are since most professional landlords like to keep their monthly costs to a minimum. There are, however, buy-to-let mortgage lenders who offer repayment agreements for landlords who feel this is a better option for them.

Speak to a buy to let expert today

Get Started

Why choose interest only over capital repayment?

To help you decide whether an interest-only buy-to-let mortgage is the right option for you, we’ve outlined their advantages and disadvantages in the table below…

Interest-only

Pros Cons
By only making repayments for the interest balance, you benefit from smaller monthly mortgage repayments  You’ll need a plan for repaying the capital balance at the end of the mortgage term. You might consider selling assets, using savings or selling the property but keep in mind that not all lenders will accept the sale of a property as a plan for final repayment.
The surplus from the rental income (after paying the mortgage and any other related costs such as insurance), can be used to make property improvements, as a deposit for an additional property or in some cases, to boost income during retirement. Can be more complicated to look after because your mortgage interest and the repayment vehicle are separate.
If you were to make an investment with the money that would have otherwise been spent on capital repayments, you could make a profit which might build up to a total large enough to pay off your mortgage more quickly. Potentially more expensive overall because the amount you owe will not decrease over the mortgage term. This means that the amount of interest you pay will not go down either unless you get a deal with a lower interest rate.

Why would you choose capital repayment instead?

Landlords typically choose capital repayment buy-to-let mortgages over interest only for the following reasons…

  • You’re guaranteed to clear the mortgage debt by the end of the term
  • You pay less interest overall because what you owe decreases every month
  • The potential to switch to a better deal during the mortgage term. Having a lower mortgage balance could increase your chances of being able to do this

On the flipside, with a repayment mortgage, your monthly payments will be higher. This means you’d have less income to invest elsewhere in your landlord business or retain as profit.

How to get an Interest Only buy-to-let mortgage

Before applying for your mortgage you’ll need to gather your documents, read through your credit reports to check for anything that could hold the process up or narrow down your choice of lender and then check your eligibility. Each step has been broken down below with more information.

Step 1. Gather the documents you need

That includes your:

  • Passport or driver’s licence
  • Three months bank statements from your current account and savings account if relevant for proof of deposit
  • Mortgage statement for any existing properties you own (if applicable)
  • Copies of any existing lease agreements as proof of rental income (if applicable)
  • A business plan or forecast/projection of the rental income you expect the property to generate

If you’re buying a new build you’ll also need:

  • A CML Disclosure of incentives form
  • Anticipated exchange and completion dates

Step 2. Check your credit reports

All of them preferably – so you’ll need to compare your score on credit reference agencies including:

  • Experian
  • UK Credit Ratings
  • CheckMyFile

We can help with this! You can download all of your credit reports from our dedicated hub page.

Step 3. Speak to a buy-to-let mortgage broker

You’ll need a broker who specialises in BTL interest-only mortgages for this. Get matched with an expert, for free, using our online service.

Once you’ve got an expert, they can search for exclusive deals that aren’t available to the general public using their network of lenders.

Checking your eligibility:

  • Won’t take long
  • Won’t affect your credit score
  • Will help you find the right interest only BTL mortgage lender.

Eligibility criteria

Most buy-to-let mortgages are taken out on an interest-only basis, so the criteria you’ll need to meet is no different to the general eligibility requirements for a buy-to-let mortgage.

The strength of your application will be assessed based on the following factors…

  • Rental potential: The lender will need to see that your property can generate enough rent to cover the mortgage payments, plus a bit extra. Most mortgage providers will want the rental income to cover the monthly payments by at least 125%.
  • Personal income: Not all lenders have personal income requirements, but the ones that do expect you to be earning around £25,000 per year from other sources.
  • Deposit requirements: These can be higher for buy-to-let mortgages and you can expect to be asked to put down anywhere between 20-25% of the purchase price.
  • Credit history: Clean credit will usually help improve your chances of getting a good mortgage deal, but there are specialist brokers available to help people with bad credit get approved for a buy-to-let mortgage.

You can read up on the full eligibility criteria for buy-to-let mortgages and find out how much you can potentially borrow in our complete guide to buy-to-let mortgages.

How to repay your mortgage debt

If you want to pay off your mortgage debt to either own your buy-to-let property outright or offload it, you’ll need a repayment plan.

The most popular ones include…

  • Selling the rental property
  • Allowing the disposable rental income to accumulate throughout the mortgage term
  • Using a separate repayment vehicle – like an ISA, investment fund or pension
  • Using a lump sum from inheritance or pension drawdown
  • Remortgaging to release equity with either the same lender or a new lender

Selecting the most suitable repayment vehicle for your needs and circumstances is something the brokers in our network can help you out with as part of the service they provide.

Switching from repayment to interest-only

If you have a buy-to-let mortgage on a repayment basis and want to switch to interest-only, this is usually possible. You can speak to your current lender and ask them whether they’re happy to let you switch, but before you get in touch with them, it’s a good idea to shop around first.

It might be in your best interest to remortgage onto a new interest-only deal with a lender who’s offering a superior rate. A buy-to-let mortgage broker will have access to the entire market, including deals that aren’t available to the general public, so speaking to one before taking your lender up on an offer to change your mortgage type could save you time and money.

If you’re locked into a fixed-rate deal, there could be early repayment charges to pay if you’re moving to another lender, but your broker will factor these in and act with complete transparency when advising you on whether it’s in your best interest to find a new mortgage provider.

Get matched with a buy-to-let mortgage broker today

We can handpick you a buy-to-let broker who specialises in interest-only deals to save you the time of trawling through comparison sites and calling lenders directly. Not all buy-to-let mortgage deals are advertised online and some lenders even withhold their rates, giving intermediaries like mortgage brokers exclusive access.

So, give us a call on 0808 189 0463 or make an enquiry. Our service is free. We find you the best broker to handle your mortgage, only recommending a professional that can confidently access the best interest-only deals

Ask us a question

We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Buy-To-Let mortgages. Ask us a question and we'll get the best expert to help.

FCA Logo
1 of 3
£
£
£
2 of 3
3 of 3 Send!
Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

Get Started