Interest-Only Mortgage
A mortgage where monthly payments cover only the interest, leaving the full loan balance to repay at the end of the term. The standard structure for UK buy-to-let lending.
Most UK buy-to-let mortgages are interest-only. On a £150,000 loan at 5%, the monthly payment is £625, against roughly £877 on a 25-year repayment basis. The £252 difference goes to cashflow rather than debt reduction.
Why landlords use it
- Cashflow: lower payments mean better monthly margins and more resilience in stress tests.
- Tax: only the interest element is relevant for tax relief anyway. Capital repayments are never deductible.
- Flexibility: surplus cashflow can be directed wherever the return is best, including overpayments if that is the choice.
The obligations that come with it
The balance never shrinks on its own. The loan is repaid at term end by selling, refinancing, or from other funds, and lenders ask about the repayment strategy at application. The risk shows up when values fall: an 75% LTV loan taken in a strong market can become 85%+ in a weak one, making refinancing hard.
Interest-only maximises optionality, but it pairs best with realistic assumptions about future values and rates. Model both structures side by side before deciding; the calculator supports either.