My first BTL – capital repayment or interest only?

My first BTL – capital repayment or interest only?

8:59 AM, 1st September 2014, About 9 years ago 8

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I am aiming to buy my first rental property and am weighing up whether to use a capital repayment or interest only BTL.

The first property will be circa £75k – £100k studio or 1 bedroom flat with an 85% BTL and my objective is to build a small portfolio of similar sized properties that eventually generate an independent cashflow stream.

Would either a capital repayment or an interest only mortgage be more suitable? My first BTL - capital repayment or interest only?

What would be the pros and cons of each based on my situation and objectives?

Any experience or feedback would be greatly appreciated from the community.

Kind regards


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Mark Alexander - Founder of Property118

9:01 AM, 1st September 2014, About 9 years ago

Hi Richard

I am a massive fan of interest only, particularly for newbies.

Yours is a very common question and last time it was raised on the forum it got nearly 50 responses, not all of which agree with me.

Please see >>>

Howard Reuben Cert CII (MP) CeRER

16:19 PM, 1st September 2014, About 9 years ago

BTL mortgages are usually set up on the basis that the rental income will more than cover the mortgage payment and possibly other costs (inc buildings insurance, for example) too.

And that is all well and good until .... you don't have a tenant in situ. Voids do happen and of course the lender still wants their regular monthly mortgage payments even if you're not receiving any rent.

So, a hugely popular strategy is to 'mix and match' the concept of interest only vs repayment by using the following arrangement;

set up your BTL mortgage on an interest only basis and - based on your 'comfort' of affordability - overpay on a regular basis whilst you have tenants in situ. This effectively gives you an immediate capital overpayment / repayment reducing the balance whilst you overpay - just like a repayment mortgage. However, when / if you don't have any rent coming in, simply reduce your payments to the contracted interest only level and continue on that basis, if necessary, until rental income starts again.

The other method of simply starting off with a repayment mortgage and then having to ask for an arrangement whereby you pay less than the repayment contracted monthly amount, means you would then go into arrears and this could affect your current credit file and future borrowing prospects.

However, not all lenders and products allow overpayments, so a full Fact Find discussion with a qualified and experienced Broker (see my profile 🙂 ) should be your first port of call.

By the way, as a first time BTL'er, 85%LTV BTL mortgages are simply not available. The max LTV is likely to be no more than 80% whilst you build a portfolio and can then, at some point in the future, evidence to the handful of lenders who do offer 85%LTV (to experienced landlords) that you are then eligible to qualify for those deals too.

Hope that helps.


Mervin SX

17:55 PM, 6th September 2014, About 9 years ago


I'm a big fan of repayment BTLs.

But your response has got me thinking...good advice on a hybrid option!


Howard Reuben Cert CII (MP) CeRER

16:33 PM, 7th September 2014, About 9 years ago

Reply to the comment left by "Mervin SX" at "06/09/2014 - 17:55":

Thank you Mervin

I have said many times over the years here on Property118 that there is a world of difference between buying a mortgage from a mortgage salesman (who will just provide you with what you ask for) and working with a professional Financial Adviser who can help you to plan your current situation and future requirements via flexible solutions.

Irrespective of whether you have one BTL investment or a portfolio of a hundred or more, my Firm of Professional Financial Advisers works closely with our Clients (not 'customers'!) and our aim is to help people over the long term.

So, thank you for the compliment and my profile link provides all relevant contact details.

george anderson

23:43 PM, 7th September 2014, About 9 years ago

minimum 25 percent

george anderson

23:46 PM, 7th September 2014, About 9 years ago

looking for advice i have 2 buy to lets proceeds in buying another i am going to sell my house and buy more propertys could i possibly stay in one of them

Neil Patterson

14:04 PM, 8th September 2014, About 9 years ago

Dear George,

You would need to inform the lender first that you intend to live in the property and get their consent.

george anderson

20:15 PM, 8th September 2014, About 9 years ago

Reply to the comment left by "Neil Patterson" at "08/09/2014 - 14:04":

could you find a lender that would consent

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