Updating post from Reddit.
I'm considering whether to go for an interest-only or repayment mortgage for my buy-to-let property and would appreciate thoughts from fellow UK landlords. Interest-only mortgages offer lower monthly payments, which helps with short-term cash flow and may free up money for other investments or expenses. However, they don’t reduce the loan itself, so I’d need a solid exit strategy for repaying the full capital later, whether that’s through property sale or refinancing.
Repayment mortgages, on the other hand, come with higher monthly costs but steadily build equity and reduce the overall debt over time, which seems like a safer long-term option. With the current market conditions, evolving tax rules, and interest rates in 2025, I’m unsure which route is more financially sensible. If you’re a landlord, what are you going with and why?
Interest only if you want capital to buy more otherwise payback
I remortgaged our BTLs last year, did some extra borrowing and switched to interest only. The extra borrowing will likely be used for lease extensions and bits in the future, but for now is invested. I get tax relief on the interest on the extra borrowing, so my effective interest rate is about 3.4%.
We each religiously put £333 a month into our LISA’s, I wish we had started this 10 years ago instead of paying off the principle on our BTL mortgages.
For £52000 worth of LISA contributions before I’m 50, I expect to have £240-£340k (8%-10% annual growth) in my LISA by the time I can access it, the wife should have the same…
Even if they only manage 6% average returns the LISA’s should still give us £350k combined for £100k total contributed between us and will clear all our mortgages at 60
Can I ask by what means you get tax relief on the extra borrowing? Thanks
You get residential finance relief at 20%…. Hence better to maximize the mortgage on BTL and minimize on the family home
In the interest of balance, maybe worth mentioning there's going to be a few re-mortgaging events during that time period, where you'll be exposed to interest rate fluctuations. Combined with a market downturn, you could find yourself worse off compared to reducing the BTL interest bill. Or even better off. Always consult your crystal ball before embarking on these decisions.
This is the way IMO.
May I ask what you have in your portfolio? Flats or houses?
One of each at present, previously had two flats but sold those to buy these
I don’t think many people would take a loan out if they own a place outright with the high interest rates atm, sure you might makes a extra 2% but is it even worth the hassle
This is my situation however it is to place the 75% equity release into high risk investment.
Take the longest term mortgage you can get, at interest only, for the fixed lowest rate you can find.Moneyfactscompare which is a day by day updating service shows all the best interest rate products available.
First question is how disciplined financially are you?
Do you plan on the asset price increasing over the life of the term if you have interest only?
Interest only (even for your main home) can be a real benefit if you're self employed. But you have to be disciplined.
Interest only can give you a reduction in burden if the property is void.
Interest only always. With a repayment you commit to higher monthly payments. With the interest only, I have a lower monthly commitment to save buffer for maintenance costs and rental void etc and then I have the option to over pay with a lump sum after tax is paid. All lenders will let you over pay 10% per year and some allow more before triggering a early repayment penalty.
You might pay slightly more on interest than you would otherwise have done but give yourself more options. One of those options is to pick the mortgage with the higher interest rate to pay lump sums into which is an option you have with a larger portfolio.
This. interest only but aim to repay the 10% every year after paying taxes, you however need to be very disciplined about this. I always try to give myself options which include the capital appreciation. Happy investing.
You won’t get a BTL mortgage much under 5% (after fees - some headline rates are lower) and when inflation is 3.6% and property prices are static that doesn’t seem a particularly good deal to me.
Doesn’t make any sense to take a repayment mortgage.
You should withdraw equity to get the 75% then invest it.
You don’t spend it that’s makes less sense.
Although I currently pay down, I’d go with interest only with a strict plan to accumulate capital to make annual pay downs subject to mortgage terms.
This gives you the flexibility to have capital on hand that allows you react to incidental issues while giving you the option to reduce your loan burden.
I would never breach 50% LTV though unless I’m desperate.
That's not a basic question.
What's you long term strategy. And if you don't have one yet, that's the first thing to work out
So we have a single occupancy let property. We use an interest mortgage and it's about £195 a month interest only payment.
How I see it, that's insurance for me. If the tenant leaves or doesn't pay my liability is low.
at the end of the year I'll scoop the excess and I'll put it in a stocks and shares ISA and it's been returning about 15% (rent market conditions - not guaranteed long term).
at the end of my mortgage period I plan to do a one off lump some payment.
Personally I like the flexibility of that approach but if you haven't got the disciple to put enough aside for Tax or that payment later. then go repayment .
All depends on your plans for the property. If you plan to sell after a period of time then interest only. I have 3 BTL’s all on 10yr repayment mortgages. The plan is that the income from these will be my retirement fund. Once the wife and I are gone the properties will be handed down to the kids to either live in rent\mortgage free or continue to rent them out for additional incomes.
Yes my mortgage payments are quite high and the rent doesn’t actually cover the whole cost. For me it made better sense to have them on repayment rather than interest only
Cash
Interest only and put the cash elsewhere into other business or property.