In short: The overwhelming majority of landlords use interest-only mortgages on buy-to-let property, and for good reason, it maximises monthly cash flow, keeps the loan structure simple for tax purposes, and matches how lenders assess affordability. The trade-off is you must have a credible plan for repaying (or refinancing) the capital at the end of the term, since the balance never shrinks on its own. Repayment mortgages exist for BTL and reduce risk, but are unusual because they materially cut monthly cash flow and, for individual landlords, don’t actually reduce your Section 24 tax exposure any faster than you’d think.
Why interest-only is the industry default
Buy-to-let is fundamentally an income-generating investment, and interest-only structuring reflects that:
- Cash flow: on interest-only, your monthly payment only covers interest, leaving a bigger margin between rent received and mortgage cost, this is the working cash flow that pays for maintenance, voids, letting agent fees and your own return.
- Lender affordability assessment: buy-to-let lending is assessed using rental Interest Coverage Ratio (ICR) stress tests, not personal income affordability like a residential mortgage. Lenders typically require rent to cover mortgage interest by 125% (for basic-rate taxpayers and most limited company borrowers) to 145% (for higher-rate individual taxpayers), calculated against a stressed notional rate, commonly around 5.5%, or the product rate plus a margin, whichever is higher. A repayment mortgage’s higher monthly cost makes this stress test noticeably harder to pass at the same loan amount, because more of each payment counts against affordability.
- Portfolio landlords (four or more mortgaged BTL properties) face stress testing across the whole portfolio, not just the property being financed, making cash flow efficiency even more important when scaling.
- Section 24 impact: for individual landlords, only interest counts as a “finance cost” eligible for the 20% tax credit (see our guide to Section 24 and mortgage interest relief), capital repayments get no tax relief of any kind, so paying down capital via a repayment mortgage doesn’t earn you any additional tax benefit; it’s purely a debt-reduction and risk decision, not a tax one.
The repayment vehicle risk
The obvious catch with interest-only is that the capital balance never reduces on its own, at the end of a 20 or 25-year term, you owe exactly what you borrowed. This only works if you have a credible repayment vehicle, typically one of:
- Sale of the property at the end of the term (or on retirement), using capital growth to clear the loan, the most common plan, but one that assumes house price growth continues and that you’ll actually want or be able to sell when the time comes.
- Refinancing indefinitely, rolling the mortgage over every 2–5 years for as long as you hold the property, viable as long as lending criteria, rental yields and your age allow it (many lenders cap BTL mortgage terms around age 75–85 at the end of term).
- Separate savings or investments built up alongside the mortgage specifically earmarked to clear the capital, less common in practice, since most landlords’ spare cash goes into deposits for further properties rather than a dedicated repayment pot.
- Pension or other lump sum at a defined future date.
Lenders will ask you to state your repayment strategy at application, though enforcement of how seriously that plan is checked varies significantly by lender.
When repayment makes sense
A repayment mortgage on a BTL isn’t wrong, it’s just a different risk/return trade-off, better suited to landlords who:
- Are close to retirement and want the property mortgage-free with a fixed, foreseeable payoff date rather than an open-ended refinancing dependency
- Hold only one or two properties and prioritise debt-free ownership and long-term security over portfolio growth
- Are nervous about relying on continued house price appreciation or future refinancing availability to clear the debt
- Want a forced ongoing “savings discipline” rather than trusting themselves to build a separate vehicle
The downside is a materially higher monthly payment for the same loan amount, which reduces the cash buffer available for repairs, voids and emergencies, and can make it harder to pass ICR stress tests when refinancing or expanding a portfolio.
Overpayment as a middle ground
Many experienced landlords run interest-only as the base structure but make voluntary overpayments when cash flow allows, most BTL lenders permit overpayments up to 10–20% of the outstanding balance per year without early repayment charges. This preserves flexibility (revert to minimum interest-only payments if a property is empty or a boiler needs replacing) while still chipping away at the capital over time. For landlords juggling several interest-only mortgages across a portfolio, a common strategy is to concentrate overpayments on the highest-rate or most leveraged property first, effectively self-directing a de-leveraging plan without committing to fixed higher payments on every loan simultaneously.
The practical decision
If you’re holding property for long-term capital growth and rely on the rental yield for income or reinvestment, interest-only with a clear, realistic exit plan is the standard and usually sensible choice, it’s what the whole BTL lending market is built around. If your priority is debt payoff, simplicity and reducing reliance on future market conditions, repayment (or a partial blend via overpayments) is a legitimate and lower-risk alternative, just one that costs you cash flow today. Whichever you choose, be honest with yourself about the repayment vehicle: “the property will have gone up enough by then” is a plan, but it’s a plan with real risk attached, not a certainty.
Related reading
Sources
- Interest only and repayment mortgages explained, MoneyHelper
- Ways of repaying an interest-only mortgage, MoneyHelper
This is general information, not legal, tax, or financial advice. Figures and rules referenced are accurate to the best of available information as of July 2026 unless stated otherwise. Tax rules depend on personal circumstances, always check current HMRC guidance (gov.uk) or consult a qualified accountant/tax adviser before making decisions.
Last Updated on September 21, 2026