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Buy to Let interest only mortgage explained

Whether you’re thinking of becoming a landlord for the first time, or expanding your property portfolio, L&C can help you to find the best buy to let interest only mortgage to suit your circumstances.

Landlords often prefer this type of mortgage, as interest only buy to let mortgage payments are typically lower than they are with a repayment mortgage. With a BTL interest only mortgage, each month you’ll only pay back the interest you owe on the amount you’ve borrowed.

However, your capital debt (the money you’ve borrowed) doesn’t go down month-on-month, unless you choose to make extra repayments. This means that you’ll need to pay back the amount borrowed in full at the end of your mortgage term. You could do this by selling the property, or taking out another mortgage on it. This type of mortgage might be suitable for those looking to buy a rental property as an investment, as depending on the property market, you may be able to sell it at the end of your mortgage term for more than you bought it.

Buy to Let interest only process

Whether you’re assessing the feasibility of becoming a landlord, or are already scoping out properties, our mortgage advisors will help you to find the right mortgage to suit your needs. We’ll ask you about your circumstances, income and expectations so that we can match you up with the most suitable mortgage provider. We’ll be able to compare thousands of deals to match your criteria, including deals that are exclusive to L&C.

Remember that you’re not just looking for the lowest interest rates, but the best overall deal, including all the fees and charges associated with setting up your mortgage. We’re here to help you find the best deal, and we’ll even appoint a dedicated case manager who will do all the hard work for you to secure that perfect rate - and better yet, our advice won’t cost you anything.

Buy to Let interest only eligibility criteria

The specific criteria for BTL interest only mortgages varies between lenders, and the amount you can borrow will depend on your rental income, the deposit you can pay, and your personal circumstances. It’s usually a requirement of lenders that your rental income is more than the monthly mortgage repayment amount.

Although eligibility criteria varies between lenders, there are some general guidelines and you should bear in mind that Buy to Let mortgages usually have stricter eligibility requirements than residential mortgages, as they are riskier for lenders. These include:

  • A higher minimum income requirement, usually at least £25,000 per year
  • Usually a minimum age limit of 21
  • may also be an upper age limit
  • Most lenders will require that you are already a homeowner, rather than a first time buyer

For this type of mortgage, most lenders will ask for a deposit of around 25% of the property value, although some lenders are happy to accept a smaller deposit of around 15%, if you generate enough rental income.

As a landlord who runs a business, you could be entitled to claim back tax on relevant business costs, which may include mortgage interest repayments. For advice on what you can and can't claim for you should consult an accountant.

Finding the best Buy to Let remortgage deal

Buy to let interest only mortgage rates are often slightly higher than standard residential mortgages, as lenders consider tenants to be higher risk than owner-occupiers. You’ll also need a larger deposit to secure a BTL mortgage - typically 15% to 25% of the property value. You can maximise the chances of getting the best interest only buy to let mortgage rates by putting down a higher deposit for your property.

Want to work out what will happen if the average interest rate on buy to let mortgages rises or falls? Use our mortgage interest rate calculator - simply enter your loan amount and average term, and we’ll do the rest for you.

Buy To Let interest only repayment strategy

When your mortgage term comes to an end, you’ll have the full amount of your loan to repay, as you’ve only been paying the interest over the mortgage term. It’s advisable, when taking out a BTL interest only mortgage, that you have a plan in place to repay the mortgage at the end of the term.

Many landlords take out this type of mortgage hoping that they will be able to sell their rental property at the end of the mortgage term for more than they paid for it and use the proceeds to repay the loan. However, whatever your repayment strategy, it’s important to review it regularly to make sure it’s on track.

Apply for a Buy to Let interest only mortgage with L&C

Are you ready to apply for your interest only buy to let mortgage? Let L&C’s expert advisors help. We’ve got access to a wide range of mortgage deals, with our Mortgage Finder making it easy to filter your available options. Our specialist advisors will compare deals from over 50 different Buy to Let lenders to find the best one for you. Once you’re ready to go ahead, apply online and track your application 24/7.

Don’t delay, get in touch with L&C today and find out how we can help.

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Frequently asked questions

Are Buy to Let mortgages interest only or repayment?

Most Buy to Let landlords choose to take their mortgage on an interest only rather than a repayment basis in order to keep their costs down. The capital borrowed is paid in full at the end of the agreed mortgage term. Find out more in our guide: ‘How do Buy to Let mortgages work?'

Can I get an interest only Buy to Let mortgage?

Whether you’ll be eligible for an interest only Buy to Let mortgage will depend on several factors, such as the size of deposit you can afford to put down, how much rental income you expect to receive, and what your annual income is. You can find out how much you might be able to borrow using our Buy to Let mortgage calculator.

How much deposit do I need for a Buy to Let interest only mortgage?

While it’s possible to take out a residential mortgage on a repayment basis with a deposit of just 5% of the property value, you’ll usually need to put down a much larger deposit, typically 20% or 25%, with a Buy to Let interest-only mortgage. This is because rental properties are considered a riskier prospect for lenders than residential homes. As with standard mortgages, the more deposit you can put down, the better the rates that will be on offer to you. Learn more in our Buy to Let mortgage guide.

Can you change a fixed rate mortgage to Buy to Let?

If you’re considering renting out your home and changing your current mortgage to a Buy to Let, for example because you want to move in with a partner or buy a bigger place, it makes sense to speak to a mortgage broker in advance to discuss the options. Whether you want to stick with your existing lender, or look for a Buy to Let deal elsewhere, there will be criteria you need to meet and likely fees to pay. You may also need a new mortgage if you’re buying somewhere else. Taking out a Buy to Let mortgage can be more complicated than a standard residential mortgage but L&C can help you to determine what options are best for your circumstances.

What is the maximum loan to value on a Buy to Let mortgage?

The maximum loan to value (LTV) on a Buy to Let mortgage is lower than for a standard residential mortgage. Most lenders allow you to borrow up to 75% of the property value, although some may allow you to borrow up to 85%. How much you can borrow will also be based on the amount of rental income that your property brings in.

Do Buy to Let mortgages have higher interest rates?

Interest rates for Buy to Let mortgages are usually higher than for residential mortgages, and you’ll also usually need a larger deposit.