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Phil Scott the mortgage centre
Author: Phil Scott -Director
Updated on January 30th, 2024

What is an Interest-only Buy-to-Let Mortgage?

Interest-only mortgages are a popular choice for Buy-to-Let landlords. In a nutshell, this is a mortgage product that allows borrowers to only pay the interest on the loan. The mortgage balance will then remain at a constant level. At the end of the mortgage term, the borrower must then pay off the entire loan balance.

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Getting an Interest-only Buy-to-Let mortgage

The Buy-to-Let market can be a challenging sector, especially with changes to income tax relief rules in recent years. As landlords managing all kinds of rented properties look for ways to manage their cash-flow and minimise their monthly outgoings, an interest-only mortgage can seem like an attractive option.

At The Mortgage Centres, our team comprises specialists in all areas of the Buy-to-Let mortgages market. We can give you informed, balanced advice about which options will be the most suitable for your circumstances.

Read Our Buy to Let Guide

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Fill out our quick and easy Buy to Let mortgage calculator below. We only require a few details to see how much you may be able to borrow.


How much deposit will I need for an Interest-only Buy-to-Let mortgage?

You will typically need to provide a deposit of around 25%. However, some lenders may be willing to accept 15%, while others might require a higher figure.

It all depends on the individual lender’s criteria. Some of the things that lenders consider are anticipated rental income, your affordability , and the qualities of the property.

This will help lenders decide how much they are willing to lend against the property’s value. Bear in mind that the larger the deposit, the better the interest rate.

How much can I borrow with an Interest-only Buy-to-Let mortgage?

This will depend on many aspects of the application, such as:

  • The type of property,
  • The anticipated rental income
  • Your personal income
  • Your credit history
  • Your existing portfolio of properties

But as a general guide, a lender will consider the rental revenue to be 125% of your monthly payments. This is based on a 5% rate and you can work back from there if you know the prevailing market rental rate for the type of property in question. The exact calculation for how much you can borrow will vary from lender to lender.

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

Lenders will look at many factors when considering an application. But there are usually two main stipulations before they can proceed:

  • Minimum age requirement – The minimum age at which you can get a standard residential mortgage is 18. However, lenders typically require someone applying for an Interest-only Buy-to-Let mortgage to be 21 or over. Sometimes this can even be a minimum of 25 years old.
  • Property portfolio limits – Some lenders are careful about over-commitment. They may ask for details of other Buy-to-Let properties under your control. They may then restrict the number of mortgages you can take out with them to a maximum of three or five. If you have a portfolio of 10 properties or more, a specialist lender is probably your best option.

While you can get a Buy-to-Let mortgage as a first-time buyer, most lenders will not allow them on an Interest-only basis. However, some specialist lenders might make an exception.

It’s worth discussing your plans with one of our specialist advisors, who will be able to recommend the best options.

Advantages of Interest-only Buy-to-Let mortgages

The main advantages of an Interest-only Buy-to-Let mortgage lie in flexibility and tax efficiency.

As you would only be paying off the interest on the mortgage each month, your monthly payments will be a lot less, giving you more money for things like investments and renovations. However, this does mean that the mortgage amount will stay the same for the mortgage lifetime. This means that, at the end of the mortgage term, you will need a plan in place to repay the entire loan amount.

A common way to do this is to sell the property, which should have gained in value over the years. Alternatively, you could settle the loan by selling other assets, therefore retaining the property for ongoing further income.

Tax benefits may depend on your own financial circumstances and tax status. We can offer sound advice regarding your mortgage situation and borrowing needs, but we cannot give you financial advice. It’s best to speak to a qualified accountant or tax advisor.

Disadvantages of Interest-only Buy-to-Let mortgages

The main disadvantage of an Interest-only Buy-to-Let mortgage is that the actual loan amount will not reduce over time. This in turn means that you will be paying a greater amount of interest over the duration of the loan.

You’ll need to create a long-term payment strategy to ensure that you can repay the loan amount at the end of the term. Many landlords decide to invest in a specifically designed repayment vehicle scheme. This should grow sufficiently in size to cover the loan amount and allow them to retain the property.

This means that a lot depends on the performance of the investment fund. There is always the risk that it will not have grown enough to cover the mortgage amount. In this case, the landlord will need to seek additional funds from other sources if they intend to retain the property. The alternative is to simply sell the property by the redemption date.

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Best Interest-only Buy-to-Let mortgage lenders

Many well-known high street lenders will have a Buy-to-Let offering within their range of products. However, many products will only be accessible via a broker or intermediary.

The main body of Buy-to-Let lenders operates within a specialist environment. Once again, accessing a mortgage broker is almost always necessary.

A discussion with one of our specialist advisors will enable us to source options from the whole market – opening you up to exclusive deals and ensuring that you get the best mortgage for your needs. Contact us today.

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

This is the overriding issue with an Interest-only Buy-to-Let mortgage. At the end of the mortgage’s lifetime, the lender anticipates the full repayment of the loan amount. You can deal with this in several ways:

Selling the property at the end of the mortgage term
This is the most common solution. When the mortgage term comes to an end, the landlord will sell the property to pay off the loan. Then the additional value in the property, gained through inflation, will be retained by the landlord as a return on. This will be on top of the profits already made from the surplus in rent over the years.

Investment funds
Landlords will often invest in a repayment vehicle fund, with the idea being that the fund will grow in value during the mortgage period. This will then cover the loan amount on the redemption date, meaning that the landlord will retain unencumbered ownership of the property for further ongoing rental income.

Partial capital repayments
While the mortgage is interest-only, it is entirely possible to make lump-sum capital repayments during the term. This can be either on an ad-hoc basis or, more regularly, to reduce the value of the loan over time. Whether you can access this kind of deal will depend on the lender’s own criteria. You’ll need to be careful to avoid plans with early repayment charges in these cases.

It could be possible to refinance the Interest-only mortgage onto another mortgage with an extended term. Possibly, you could even convert the loan into an Equity Release plan. This all depends on the property value, the remaining mortgage amount, and the age of the owner.

Best Buy-to-Let Interest-only mortgage rates

The interest-only Buy-to-Let mortgage rate you’re charged will vary from one lender to the next. It will depend on the ratio of the mortgage in relation to the property value and the duration of any fixed-rate term.

You will also notice that interest rates are constantly shifting due to various situations in the market. The only way to get an accurate insight into the interest rates you could be charged is through a specialist mortgage advisor. They will be able to advise you about the best options.

Interest Only Buy to Let FAQs

  • Do I need an investment vehicle in place to have an Interest-only mortgage?
  • Can all mortgages be placed into Interest-only?
  • Can I change from Interest-only to a repayment mortgage later on?

The short answer is yes. The current laws around mortgage lending mean that providers must be sure that you can meet your monthly repayments. You must also have a plan in place to repay the entire loan at the end of the mortgage term.

During your mortgage application, the lender will take steps to verify your finances. This will ensure that the proposed plan will cover all the funds due during the term.

There are some lenders who are open to switching from a capital repayment plan to an interest-only mortgage. These lenders will want to ensure that you have a suitable repayment plan in place, either via an ISA or an Endowment Policy, or by selling the property. This shows them that you can pay the amount off at the end of the term.

Yes, switching from interest-only to a capital repayment plan is entirely possible. Many lenders will be open to this.

You should be aware that it is possible to arrange your mortgage to be on a ‘part-and-part’ basis. This is where a portion of the mortgage is interest-only and the remainder operates as a repayment plan. It’s often dependent on how much equity is already in the property.

This is helpful for people with a repayment plan that may not be enough to pay off the loan.

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