Interest-only vs repayment for buy-to-let in 2026

StackCheck · August 2026 · 8 minute read

Most buy-to-let mortgages in the UK are interest-only, and there are good reasons for that — but it is not automatically the right choice. The decision comes down to a single trade-off: cashflow now versus equity later.

In August 2026, the average two-year fixed buy-to-let rate at 75% LTV is around 5.7%, so the numbers below use 5.5–5.7% as a realistic working figure.

What each one does to the monthly payment

On a £150,000 loan at 5.5%:

The repayment version costs about £233 more a month — but that extra is not lost, it is buying down your debt.

The case for interest-only

• Cashflow: the lower payment means more monthly surplus, which is the point of an income-producing asset.
• Easier to pass the stress test: stronger cashflow gives you more headroom, and it is easier to hold a portfolio when each property throws off cash rather than swallowing it.
• Flexibility: you can choose to overpay (many lenders allow 10% a year) when it suits you, rather than being locked into capital repayment.

The case for repayment

• You end up owning it: at the end of the term the debt is gone and the rent is almost all yours — useful if the property is your pension.
• Lower risk: a falling market is far less frightening when your loan is shrinking every month.
• No refinance cliff: interest-only leaves the full loan outstanding at term end, so you need an exit — refinance or sell.

The Section 24 angle

Since Section 24, individual landlords cannot deduct mortgage interest from rental profit — you get a 20% tax credit on the interest instead. Only the interest portion qualifies; the capital portion of a repayment mortgage was never deductible anyway. So interest-only does not create a tax deduction out of nothing, but it does keep your monthly outgoings lower while that 20% credit still applies to the interest you pay. For higher-rate taxpayers the maths is one of several reasons a limited company is worth modelling.

A note on the stress test

Lenders run the ICR stress test on the interest at a stressed rate regardless of your repayment method, so choosing repayment does not usually make the affordability test harder to pass. What it changes is your real monthly cashflow, which is the thing you live with.

Who suits which

Broadly: cashflow-focused investors and portfolio builders lean interest-only; long-term, lower-risk holders who want the property owned outright lean repayment; limited companies almost always use interest-only. There is no universally right answer — run both. In the StackCheck analyser you can flip the mortgage type between interest-only and capital repayment and watch the cashflow and verdict change on the spot.

Common questions

Is interest-only or repayment better for buy-to-let?

Interest-only gives lower monthly payments and stronger cashflow, which suits investors focused on income and portfolio growth. Repayment costs more each month but pays down the loan so you eventually own the property outright, which suits lower-risk, long-term holders. Neither is universally better - model both for your deal.

Can you still get interest-only buy-to-let mortgages in 2026?

Yes. Interest-only remains standard for buy-to-let and most landlord mortgages are arranged this way, unlike residential mortgages where it is now rare. Lenders still expect a credible repayment strategy for the end of the term, usually selling or refinancing.

What happens at the end of an interest-only buy-to-let term?

The full loan is still outstanding, so you need an exit: remortgage onto a new deal, refinance to release equity, or sell the property. Because nothing has been repaid, you should plan that exit from the day you take the mortgage.