Interest-Only Buy-To-Let Mortgages UK

By Kristian Derrick

Last Reviewed: 31st August 2023

A buy-to-let mortgage is an excellent choice if you’re looking to buy a property as an investment rather than somewhere to live yourself.

Interest-only buy-to-let mortgages are very popular, with over 700,000 pure interest-only mortgages in the UK.

Here’s everything you need to know about interest-only buy-to-let mortgages in the UK to help you make an informed decision.

How do Buy To Let Interest Only Mortgages Work?

A buy-to-let interest-only mortgage allows you to pay only the interest on the loan every month for the duration of the mortgage.

Since you only pay interest on the buy-to-let mortgage, you must pay off the entire loan balance at the end of the term.

Most people pay off the balance as a lump sum by selling the property at a profit if it has gained value, or by extending the mortgage for a longer term.

You can also sell other assets or have a plan to pay off the remaining balance in case house prices fall and the value of the property is less than what you paid.

What Are The Pros of A Buy to Let Mortgage Interest Only?

A buy-to-let interest-only option features various advantages, including:

Low Monthly Payments

With a buy-to-let mortgage interest only, you’ll make lower monthly payments because you’re only paying the interest on the loan and nothing else.

You can easily cover the interest payments with the rental income and remain with more money from the rent received than a repayment mortgage.

Most lenders require that the buy-to-let property generates a higher income than the amount you must pay back, which can be 125% to 145%.

You can also switch to another interest-only buy-to-let mortgage once the introductory period is over to ensure the interest-only payments remain low.

Higher Profits

Low monthly payments translate to higher profits from your rental income once the mortgage payment is deducted.

The surplus can be helpful in various ways, as it can help you cover unexpected costs like renovations or modifications.

You can also use it for professional or insurance fees, or save each month to afford another investment property.

With a buy-to-let repayment mortgage, your profit margins will be tight and possibly non-existent since you must cover monthly interest and capital payments.

Safety Net

Having tenants on your buy-to-let property isn’t guaranteed, and you may go a few months without making any money in rent.

A buy-to-let mortgage interest only can provide a kind of safety net since you’ll make lower monthly payments out of pocket than a repayment mortgage.

Easier Affordability

Buy-to-let mortgage lenders don’t usually have minimum income requirements, but they insist that the rental income generated from the property exceeds the mortgage.

Depending on the lender, the rental income must be around 125% to 145% of the mortgage.

A buy-to-let mortgage interest only makes it easier to meet the lender’s affordability requirements because the monthly payments will be lower.

It’s easier to afford monthly interest-only payments and remain with profit from the rental income.

What Are The Cons of A Buy to Let Mortgage Interest Only?

You need to consider a few things when deciding to take out a buy-to-let mortgage interest-only, including:

More Interest Overall

Since the outstanding balance doesn’t reduce on a buy-to-let mortgage interest only, the interest level remains the same every month.

Therefore, you’ll end up paying more interest over the full term than a repayment mortgage.

With a repayment mortgage, you’re continuously paying down the capital each month, and the amount of interest you pay gradually reduces as you reduce the balance.

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It’s Considered a Higher Risk

Most lenders consider a buy-to-let mortgage interest only as riskier because you’re required to make one large payment at the end of the term.

Even if you have a plan on how you’ll pay the amount, there’s no guarantee that it will pan out as expected.

Most borrowers choose to sell their investment properties for a profit, but this leaves you at the mercy of the housing market as property prices can fall around the time your mortgage term ends.

You may fall short of the lump sum amount and need another repayment strategy, like an investment fund, to cover the balance.

Limited Ownership

You’ll not own the investment property at the end of the term since you only pay the interest and nothing on the actual mortgage balance.

You’ll only get full property ownership after making the lumpsum payment on the mortgage balance.

Eligibility Criteria for Buy to Let Mortgage Interest only

Different lenders can have varying criteria, but some general factors lenders will look at include the following:

Rental Income

The property’s rental income potential is essential, since lenders use it to determine affordability.

Generally, you’ll use the rental income to make mortgage repayments, and you’ll need to have a forecast of the rental income from a registered letting agent.

Credit History

Adverse credit can make it challenging to qualify for a buy-to-let mortgage interest only, but it’s not impossible.

The severity, age, and amount involved in your credit issues can impact the lending decision, and enders can overlook less severe cases.

You can also find specialist lenders offering interest-only buy-to-let mortgages for borrowers with less-than-perfect credit scores through the help of a mortgage advisor or broker.

Property Type

Lenders set particular preferences on the property type they’re willing to finance.

Most stay away from investment properties with non-standard construction or houses of multiple occupancies (HMOs), but some are more flexible.


Lenders can also set minimum and maximum age limits on their products.

Most require that you’re at least 21–25 years old and that you can finish repaying the mortgage by age 75-86.

How Much Deposit Do You Need?

You’ll usually need a larger deposit for a buy-to-let mortgage, and the higher the deposit, the better the deal terms.

Most lenders require a minimum 25% deposit for an interest-only buy-to-let mortgage.

Lower deposits can result in higher rates and fees, so aim for high deposits to get the best deals available.

Buy to Let Mortgage Interest Only Final Thoughts

A buy-to-let mortgage interest-only option is an excellent choice to increase your cash flow and get reduced monthly mortgage payments.

However, it’s a significant financial decision, and you must ensure it’s your best option.

Ensure you consult an independent mortgage advisor with experience arranging buy-to-let interest-only mortgages to get qualified advice and access to the best deals.

Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.

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