Interest-Only Mortgage
Quick answer
A mortgage where the monthly payment covers only the interest, leaving the original capital to be repaid at the end of the term. Most buy-to-let mortgages are interest-only because it maximises monthly cashflow and, historically, the tax treatment of interest. The capital must still be repaid eventually — usually by selling or remortgaging the property.
At a glance
- Payment
- Interest only; capital repaid at term end
- Common in
- Most buy-to-let lending
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Open full guideWhy Interest-Only Mortgage matters for landlords
Interest-only keeps monthly outgoings low and, before Section 24, made the whole payment tax-efficient — but it leaves a lump sum owed at the end of the term. Landlords relying on rising prices to clear that capital are exposed if values fall or lending tightens at remortgage. The prudent view treats the eventual capital repayment as a planned event (sale, savings, or refinance), not something to worry about later.
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Official sources
LetCompliance editorial reviews this entry every quarter against the sources above. Always confirm specific duties with a qualified solicitor or your local council.
Related terms
Interest Coverage Ratio (ICR)
The rental stress test buy-to-let lenders use to decide how much they will lend. It measures whether the rent covers the mortgage interest by a required margin — commonly 125% for basic-rate borrowers and 145% for higher-rate borrowers — tested at a notional stressed interest rate rather than the actual pay rate.
Buy-to-Let Mortgage
A mortgage designed for a property bought to rent out rather than live in. Lending is assessed mainly on the rent the property will produce, not just the borrower’s salary, and most are interest-only. Deposits are larger than for a residential mortgage — typically at least 20–25% — and the interest is relieved only as a 20% tax credit under Section 24.
Consent to Let
Written permission from a residential mortgage lender allowing the owner to let out a home bought on an owner-occupier mortgage, without switching to a buy-to-let product. Usually granted for a limited period (often 6–12 months) and sometimes with a rate uplift. Letting without it breaches the mortgage terms and can, in principle, let the lender demand full repayment.
Loan to Value (LTV)
The size of a mortgage expressed as a percentage of the property’s value. A £150,000 loan on a £200,000 property is 75% LTV. Buy-to-let lending is usually capped around 75–80% LTV, and lower LTVs unlock better interest rates.
Remortgaging
Switching a mortgage to a new deal, either with the same lender (a product transfer) or a new one, usually when a fixed or tracker period ends. Landlords remortgage to avoid rolling onto the lender’s higher standard variable rate, or to release equity to fund another purchase.
ICO (Information Commissioner's Office)
The UK data protection regulator. Landlords who process tenant data (names, ID copies, bank details) are data controllers under UK GDPR and may need to pay the ICO's data protection fee. A privacy notice to tenants is required.