Interest-only buy-to-let mortgages

An interest-only buy-to-let mortgage is a loan on a rental property where the monthly payment covers only the interest. The amount borrowed stays the same throughout the term and is repaid in one sum at the end, usually from selling the property, refinancing or other savings. Most buy-to-let mortgages are arranged this way.

Because no capital is repaid each month, payments are lower than on a repayment mortgage for the same loan and rate. That leaves more of the rent available for running costs, but the debt does not fall over time unless the landlord makes overpayments.

Interest-only buy-to-let is available from most buy-to-let lenders, on fixed, tracker and discounted variable products, and on purchases as well as remortgages. Lenders that offer it set the same loan-to-value bands and rent tests as for repayment loans, plus a requirement to show a credible way to repay the loan.

On an interest-only buy-to-let mortgage the monthly payment is the loan multiplied by the annual interest rate, divided by twelve. The payment changes only if the rate changes, for example when a fixed rate ends or a tracker rate moves. Product fees added to the loan also increase the interest charged.

Worked example (example figures, not market data): a £150,000 interest-only loan at 5% a year costs £625 a month. The same loan on a 25-year repayment basis at 5% would cost about £877 a month, because part of each payment reduces the loan. A buy-to-let mortgage calculator shows the figures for any loan and rate entered.

Buy-to-let lenders assess interest-only loans mainly on the rent. The expected rent must cover the interest at a stressed rate by a set margin. The PRA expects a stress rate of at least 5.5% for most products, with lenders setting their own cover ratio (PRA Supervisory Statement SS13/16, accessed 20 Oct 2026).

The landlord's tax position matters too, because higher-rate taxpayers can only claim a basic-rate tax credit for mortgage interest on residential lets held personally (GOV.UK, restricting finance cost relief, accessed 20 Oct 2026). Some lenders use a higher interest cover ratio for higher-rate taxpayers as a result.

Lenders want to know how an interest-only buy-to-let loan will be repaid when the term ends. Selling the property is the most common plan, followed by refinancing, savings or the sale of other assets. Some lenders ask for a minimum level of equity or a credible plan before agreeing the loan.

Property values can fall as well as rise, so a sale may not repay the whole loan if prices drop. Overpaying within the lender's allowance, or switching part of the loan to repayment, reduces the balance owed at the end. A buy-to-let remortgage can also change the repayment method when a deal ends.

Interest-only keeps payments lower and makes it easier to pass the rent test, while a repayment mortgage costs more each month but clears the debt by the end of the term. Some landlords choose part-and-part, splitting the loan between the two. The choice depends on cash flow, plans for the property and attitude to debt.

Pricing for interest-only and repayment buy-to-let products is often similar, as most lenders use the same products for both. Fees, the loan-to-value band and the rent test usually make a bigger difference to the cost than the repayment method alone.

Landlords with several properties sometimes mix the two, keeping interest-only loans on some rentals and repayment loans on others, so that part of the portfolio is paid down over time while cash flow stays manageable. The mix can be revisited each time a deal ends and the loans are remortgaged.