Interest-Only Buy-to-Let Mortgages

An interest-only buy-to-let mortgage means your monthly payment covers only the interest, and the loan itself is repaid in one go at the end of the term. Most landlords use it because it keeps payments low and makes the rental test easier to pass.

On a repayment mortgage, each payment also reduces the loan, so it is paid off by the end. Interest-only does not do that. The debt stays the same, so you need a clear plan for clearing it.

For how buy-to-let lending works more widely, see our complete buy-to-let mortgage guide.

How does an interest-only buy-to-let mortgage work?

You pay the interest and nothing else. On a £150,000 loan at 5%, that is £625 a month, and you still owe £150,000 at the end. Most buy-to-let lenders base their rental test on interest-only payments. At the end of the term you repay the loan, usually by selling, refinancing or using savings.

Illustration only

On a £150,000 buy-to-let mortgage at 5% over 25 years, interest-only costs £625 a month. Repayment costs about £877 a month. With rent of £1,000, interest-only leaves £375 a month before other costs. Repayment leaves £123, but reduces the debt by around £3,000 in the first year, rising each year.

Why do landlords choose interest-only?

Higher monthly cash flow to cover voids, repairs and tax.
Easier rental test, since most lenders calculate on interest-only.
Flexibility to overpay when you choose, within the lender’s allowance.
Capital to reinvest rather than tying it up in the property.

Which situations do lenders see most?

These are illustrative situations, not Option Finance client outcomes.

One flat, tight margins

Your rent only just covers costs on a repayment basis. Interest-only gives breathing room for voids and repairs.

Cash flow first, but plan the exit

A growing portfolio

You plan to sell one or two properties later to clear the loans on the rest. Lenders usually accept a sale as the exit.

Keep the plan written down

Nearing retirement

The term would run past the lender’s maximum age. That limits how long you can borrow for.

Check age limits before you choose a term

Wanting to chip away

You want lower payments now but some of the debt gone by the end. Part and part splits the loan between the two.

A middle route, if the rent allows

What are the risks?

The full debt remains. If property values fall, you could owe more than it is worth when the term ends.
No equity build-up from payments. Growth comes only from rising values.
Repayment depends on a plan. If selling is the plan, the timing may not suit the market.
Tax: individual landlords only get a basic-rate credit on interest, so higher payments do not bring full relief. GOV.UK explains this in its guide to paying tax on rental income.

How can you plan to repay the loan?

Common strategies include:

Selling the property at the end, or selling one property in a portfolio to clear others.
Regular overpayments, within the allowance your lender sets each year.
Switching to repayment later, when cash flow allows.
Savings or investments built up separately.

MoneyHelper sets out the main options in its guide to ways of repaying an interest-only mortgage. If selling is the plan, remember that any gain is taxed. See GOV.UK’s guide to tax when you sell property.

What do lenders check?

The rental test, usually on an interest-only basis at a stressed rate.
Maximum term and age. Many lenders cap your age at the end of the term.
Your exit plan. Buy-to-let lenders are usually less strict than residential ones, but some still ask.
Personal income, as many lenders set a minimum.

What mistakes should you avoid?

Ignoring the end date until the last year of the term.
Assuming prices will rise. If they fall, a sale may not clear the loan.
Spending all the extra cash flow instead of keeping some aside for voids and repairs.
Forgetting tax on a sale, which reduces what is left to repay the loan.

What is part and part?

Some lenders offer part interest-only, part repayment, which reduces the debt over time while keeping payments lower than full repayment. See our repayment buy-to-let guide, our guide to offset buy-to-let mortgages and our interest-only vs repayment calculator.

Frequently asked questions

Are most buy-to-let mortgages interest-only?

Yes. Most landlords choose interest-only for the lower monthly cost and because lenders’ rental tests are usually based on it.

Do I need a repayment plan for an interest-only buy-to-let?

Lenders are less strict than for residential interest-only, but you still need to repay the loan at the end, usually by selling or refinancing.

Can I switch from interest-only to repayment?

Usually, yes, subject to affordability. Many lenders allow a switch or part-and-part.

Can I overpay an interest-only buy-to-let?

Usually up to a set allowance each year without early repayment charges. The allowance varies by lender, so check your terms.

What happens at the end of an interest-only buy-to-let?

You repay the full loan in one go. Most landlords sell, refinance or use savings, and lenders expect you to have a plan in place well before the end.

Is interest-only riskier if house prices fall?

Yes. Your debt does not fall, so a drop in value cuts your equity and can leave a sale short of what you owe.

Can I extend the term on an interest-only buy-to-let?

Sometimes, at a remortgage or by agreement with your lender, subject to the rental test and age limits.

Speak to Option Finance about interest-only buy-to-let

Tell us about the property, the rent and how you plan to repay. We will tell you straight how interest-only and repayment compare on your numbers, and which lenders fit your term and age.

Book a free initial consultation using the enquiry form below. See our buy-to-let mortgage advice, our buy-to-let remortgage guide and our portfolio landlord guide.

Some buy-to-let and commercial mortgages are not regulated by the Financial Conduct Authority. Regulation depends on the mortgage type and circumstances.