Interest-only or repayment for a buy-to-let?

Interest-only

You pay only the interest each month; the loan itself is repaid at the end of the term, usually from selling the property or refinancing it. On £200,000 at 5% that is £833 a month.

Why landlords choose it: lower monthly cost, so the rent covers it comfortably and the lender's rental cover test passes more easily; better cash flow; capital repayments do not reduce your tax bill anyway, so there is no tax reason to make them; and the property, not your monthly payment, is the repayment plan.

Repayment

You pay interest and capital each month, and own the property outright at the end. On £200,000 at 5% over 25 years that is £1,169 a month.

Why some landlords choose it: a guaranteed outcome; no reliance on prices; a lower loan-to-value over time, which unlocks better rates at each remortgage; and peace of mind for people who plan to keep the property for income in retirement.

The lender's view

Lenders test rental cover on the interest-only figure even for repayment mortgages, so choosing repayment does not reduce the loan you can get. It does reduce your cash flow. Many landlords take interest-only and overpay when they can (usually 10% a year without penalty), which gets most of the benefit of repayment with the flexibility of interest-only.

The question to answer

If you are interest-only: how will the loan be repaid at the end of the term? "Sell the property" is a fine answer if the term ends when you expect to sell and prices have not fallen below the loan. "Refinance" depends on being able to get a mortgage at that age and on that rent. Lenders now ask about this at application, and some set a maximum age at the end of the term (often 75 to 85, some none). Have an answer.

Term length

For interest-only the term barely changes the payment, so choose it to suit the exit: a term ending around when you plan to sell, or the lender's maximum for flexibility. For repayment, a longer term lowers the payment and increases the total interest.

A note on the numbers. Rental cover ratios, stress rates, loan-to-value limits and fees are typical of the market at the time of writing (2026) and differ from lender to lender. Tax rules are for individuals and companies resident in the UK and change with each Budget. This is general information, not advice: a broker will tell you what applies to your property, and an accountant what applies to your tax.