Last reviewed on 5th August 2023 by Martin Alexander (Mortgage Advisor)
While there are many different buy to let mortgages to choose from, getting approval isn’t always easy. You’ll also need to decide on the right type of mortgage for your buy to let property. For instance, you may choose to apply for a buy to let repayment mortgage rather than an interest-only deal.
While buy to let mortgages are more popular on an interest-only basis, repayment mortgages also have advantages. The type of mortgage you choose will typically be based on your investment goals. This guide will help you to explore your options before making a decision.
- What is a buy to let repayment mortgage?
- Advantages of a buy to let repayment mortgage
- Disadvantages of a buy to let repayment mortgage
- Should I choose an interest-only or a buy to let repayment mortgage?
- Will I qualify for a repayment buy to let mortgage?
- How can I get the best buy to let repayment rates?
- Does having bad credit affect a buy to let repayment mortgage?
- Speak to a buy to let expert
- Buy to let repayment mortgages FAQ
What is a buy to let repayment mortgage?
A buy to let capital repayment mortgage is a loan used to purchase an investment property where both the capital and interest are repaid. As a result, the amount of interest and capital you owe will reduce as the mortgage is repaid.
If you make all of your mortgage payments, you’ll own your buy to let property outright at the end of your term. For instance, if you took a £250,000 mortgage on a capital repayment basis, you’d owe nothing once your mortgage term finishes. This is provided you’ve kept up with your payments.
In comparison, if you took the same mortgage on interest-only, you’d still owe the lender £250,000 at the end of your mortgage term.
Why would landlords want a repayment mortgage?
Buy to let repayment mortgages are popular with those wanting to boost their income in retirement.
If you own a buy to let outright, the rental income received will be all yours. Furthermore, if you sold the property towards the end of the term, you’re likely to make a capital gain.
You may also be able to switch from an interest-only to a repayment mortgage. Doing so can provide you with a long-term investment that you could pass down to children.
Advantages of a buy to let repayment mortgage
- You’ll own the property outright at the end of the mortgage term
- The interest on your mortgage will decrease over time
- You’ll typically pay less interest when compared to an interest-only mortgage
- You won’t need a repayment vehicle or exit strategy at the end of your term
- Ideal for providing income later on in life
- The property can be passed on to children or next of kin
Disadvantages of a buy to let repayment mortgage
- Affordability assessments can be very strict
- Mortgage repayments can be higher when compared to an interest-only mortgage
- Not many lenders offer buy to let repayment mortgages
- Can be difficult to get larger mortgages due to affordability
As repayment mortgages consist of paying both capital and interest, monthly payments are often high. As a result, affordability assessments can be difficult. It can also be difficult to get a large mortgage for the same reason.
Should I choose an interest-only or a buy to let repayment mortgage?
Interest-only is by far the most popular buy to let mortgage type. That being said, whether you choose to have a repayment or interest-only mortgage depends on your investment goals.
An interest-only mortgage can allow you a better cash flow each month, especially towards the start of your mortgage. This is because repayment mortgages often leave little cash flow each month.
Repayment mortgages tend to be cheaper overall, as the capital and interest are reduced as you repay the balance each month.
An interest-only mortgage will also require you to have a repayment vehicle or an exit strategy. This is because you’ll still owe your lender the entire capital balance at the end of your mortgage term. This is perhaps one of the biggest drawbacks of interest-only mortgages.
What if I have more than one investment property?
If you have a number of properties, you may want to diversify from having every property on an interest-only basis. For instance, many portfolio landlords often have a mixture of both interest-only and repayment mortgages. This can enable you to achieve the cash flow you require, along with owning properties outright for retirement.
You can speak to our advisors about what you hope to achieve from your property investment. We’ll then be able to advise you on which mortgage type will be the most suitable.
Learn more: What is an interest-only buy to let mortgage?
Will I qualify for a repayment buy to let mortgage?
Qualifying for a repayment buy to let mortgage is certainly more difficult when compared to an interest-only mortgage. This is because the monthly repayment cost will be higher.
Lenders will also assess your application on the following:
- Income and affordability
- Credit history
- Employment details
- Property type
- Loan to value/deposit amount
How can I get the best buy to let repayment rates?
You can improve the rates you’re offered by ensuring the following:
- Save as much as you can for a deposit
- Keep your credit file tidy
- Shop around for the best deals
- Try and clear any outstanding debts
- Limit your spending for at least 3 months before applying
Finding the best mortgage rates is important, as buy to let is primarily for investment purposes. Paying over the odds for your mortgage can therefore have a negative effect on your investment.
Does having bad credit affect a buy to let repayment mortgage?
Having bad credit can affect your mortgage chances. That being said, a buy to let repayment mortgage is still possible with the following credit issues:
- County Court Judgements (CCJs)
- Late payments and arrears
- Debt Management Plan (DMP)
- Individual Voluntary Arrangement (IVA)
The type of mortgage available to you will depend on the credit issues you’ve faced, along with how recent they were.
Speak to a buy to let expert
Many of our advisors are also landlords and have been investing for several years. Getting a buy to let mortgage goes beyond the mortgage type you choose to have. As we’ve established, there isn’t one mortgage type that’s better than the other. There are many other variables to consider when selecting the most suitable mortgage for your investment.
Having the right mortgage can help you to achieve your investment goals a lot quicker than having a poorly chosen product. You can call us today on 0800 195 0490 or make an enquiry for further information.
Buy to let repayment mortgages FAQ
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.