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Interest Only Buy to Let Mortgages

An interest only buy to let mortgage allows you to repay just the interest on the mortgage each month helping to keep your repayments low. This is a popular option with landlords as it allows you to earn more of a return each month.

The downside is you have to pay off the capital when the mortgage ends, either by taking out a new mortgage, selling the house or using other funds you have available. The alternative is a capital and interest mortgage which means you pay more each month to reduce or entirely pay off the capital over the life of the mortgage.

Types of Interest Only Buy to Let mortgage

Different providers offer different types of buy to let mortgages which mainly tend to affect what kind of interest rates you will pay. There are three common types of buy to let mortgage you will usually come across.

Fixed rate buy to let mortgages set your interest rate at a guaranteed level for an introductory period (normally the first 2-5 years of your mortgage term). After this your interest will usually revert to a standard variable rate.

Tracker mortgages tie your interest rate to the Bank of England Base Rate (or an equivalent) plus a set additional percentage. This helps your interest rate stay in line with inflation.

Discount rate mortgages give you a reduced rate of interest for an introductory period (often around 2-5 years) after which you will generally pay a standard variable rate. This can make your borrowing more affordable when you first buy a property.

How interest rates on Buy to Let mortgages are calculated

When working out what sort of interest rates to charge you, lenders will look at a number of different factors including:

  • How much you need to borrow
  • The length of time you wish to repay over
  • Loan to value (LTV) ratio i.e. what percentage of your property’s market value you borrow

Most lenders will require your monthly rental income to exceed the monthly interest payments on your mortgage, so the interest rate you are offered is likely to directly impact how much you have to charge in rent.

Lending criteria for interest only Buy to Let mortgages

To qualify for a buy to let mortgage, there are certain requirements most lenders will expect you to meet, some of which are different from a standard mortgage.

Common lending criteria include:

  • Owning your own home
  • Earning over £25,000 per year
  • Being 25 or over
  • Being under 70 when the mortgage term ends
  • Having a good credit history

Even if you don’t meet these standard requirements, some lenders will likely still consider you for buy to let finance. It is well worth speaking to a mortgage advisor about this as they will be well placed to connect you with the lenders most likely to accept you.

Compare Interest Only Buy to Let mortgage rates

To find the best deals on interest only buy to let mortgages, take a look at our free mortgage calculator. Just click on the link and choose “Buy to let” in the “Reasons for mortgage” section. You can then select how much you want to borrow, how long for and other criteria so the mortgage calculator can match you with the best value deals from across the market.

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