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Interest-Only Buy-to-Let Mortgages

Most customers operate their Buy-to-Let on an interest-only basis. As a result, the mortgage balance remains at a constant level. This way, monthly payments are lower because there is no element of the mortgage capital balance being repaid.

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Author: Carl Shave - CEO and co-founder
Last updated: 22 Dec 2024

What is a Buy-to-Let interest-only mortgage?

A Buy-to-Let interest-only mortgage allows you to only pay the interest on your mortgage term, keeping your monthly payments lower as you’re not paying off the mortgage debt. Although, you’ll still have to pay back the full mortgage amount at the end of the term.

By minimising payments, it allows the potential for a surplus of rent once expenses are covered. Helping the borrower if other unexpected costs arise. The repayment of the mortgage is normally completed by selling the property or from the proceeds of other assets.

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An introduction to Buy-to-Let Mortgages

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Whether you're investing in your first Buy-to-Let Mortgage or an experienced landlord, we can help.

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Useful Information

What is the eligibility for an Interest-Only Buy-to-Let mortgage?

Lenders consider many factors when assessing eligibility. Typically, the main factors considered are:

  • A minimum age requirement.  A standard residential mortgage requires a borrower to be 18 years old. However, it is not uncommon for a lender to expect an applicant to be at least 21, or even 25 years old.
  • Property portfolio limits may apply. Lenders will ask for details of all other Buy-to-Let properties. They may restrict the number of mortgages with them to a maximum of 3 or 5. Additionally, the assessment will include the total portfolio size. For borrowers who have more than 10 mortgaged properties, it’s likely a specialist lender is the best option.
  • Expected rental income. Lenders will also consider the expected rent. They will base this on several things, such as the property value and property type.

Although it’s possible for a first-time buyer to apply, many lenders will not process this on Interest-Only. There may be exceptions with some of our more specialist lenders. Our Buy-to-Let specialists can assess your situation and make a suitable recommendation.

How can a mortgage broker help with an interest-only buy-to-let mortgage?

At Just Mortgage Brokers, we have specialist advisors that can support you. Helping you secure the best interest-only Buy-to-Let mortgage.

Brokers have access to specialist lenders that aren’t accessible to the public. Meaning that by not using a broker you are limiting your options. This could leave you paying a less competitive rate.

Get in touch today and we will pair you with one of our specialist brokers.

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Are interest-only buy to let mortgages worth it?

The main advantage from a landlord’s point of view is the potential for tax efficiency and flexibility. From a flexibility angle, the monthly payments will be lower than a traditional Capital and Interest Mortgage.

However, this does mean that the mortgage balance does not reduce monthly. Therefore, a strategy needs to be in place for repayment of the loan in the future.

Alternatively, the mortgage may be repaid by realising other assets. This will allow the landlord to retain the property for the future.

Interest-only Buy-to-Let Mortgages may offer tax benefits, depending on the financial circumstances of each borrower. While we can provide advice relating to your borrowing needs, we do not offer tax advice.

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As mentioned, the mortgage balance is not reducing each year in the same way as a repayment mortgage. As a result, the interest charged on the ongoing outstanding balance does not reduce. Over the longer term, this effectively results in charging a greater amount of interest.

Hence, it is crucial to consider a long-term repayment strategy from the outset. Some landlords may choose to invest in a repayment vehicle plan, with a view to this having grow sufficiently over the years. This can then produce funds to clear the mortgage and allow the property to be retained.

Alternatively, the plan may be to sell the property and clear the loan. This may not be something that you wish to do, but if you don’t have the capital elsewhere, there may be little choice.

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How do I pay back an Interest-only Buy-to-Let mortgage?

At the end of the mortgage term, the lender will expect the full mortgage balance to be repaid. This can be planned for in several ways. The most common solution is for a landlord to sell the property and repay the loan from the proceeds. This will leave any surplus from house price inflation to be utilised by the landlord.

Throughout the term of the mortgage, alternative investments may be made. You can use the capital gained from these investments to pay off the loan amount. This will allow the landlord to keep hold of the property and continue to enjoy the rental income.

Even though the mortgage operates on an Interest-Only basis, there is no reason why you cannot make lump sum “capital repayments” during the term. This will be subject to the lender’s criteria and care should be taken to avoid early repayment charges. Remortgaging to another interest-only mortgage with an extended term or converting to an Equity Release plan are possible options. This depends on the mortgage balance, value of the property and the age of the owner.

How can I get the best Buy-to-Let interest-only mortgage rates?

Interest-only Buy-to-Let Mortgage rates will likely vary from lender to lender. They depend on the size of the mortgage in relation to the property value and the term of any fixed rate period.

Rates are constantly changing due to market conditions and lender appetite. Therefore, it can be difficult to give an exact number.

Our expert advisors will review your situation and goals to find the best rate options for your Buy-to-Let needs. Get in touch today!

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Interest Only Buy-to-Let Mortgages FAQs

Yes, this is entirely possible to do so. Although, you will need to speak to your lender to see if they will allow it based on your agreed product.

Remember, you will need to prove to the lender that you can afford the monthly payment increase. This is because you will also be repaying the loan amount as well as the interest.

No, interest-only Buy-to-Let mortgages aren’t the only option available. There are standard repayment Buy-to-Let mortgages available in the market too.

Landlords typically favour interest-only mortgages more. However, this doesn’t mean you have to choose an interest-only option.

At the end of the day it’s choosing whether a repayment or interest-only mortgage suits you better.

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