Most customers operate their Buy to Let on an Interest Only basis. As a result, the mortgage balance remains at a constant level. In this way, the monthly payments to the lender are lower because there is no element of the mortgage capital balance being repaid.

By keeping the monthly payments to a minimum, this allows for a potential surplus of rent once any other related expenses have been covered, which may help the borrower in the event that other unexpected costs arise. The eventual repayment of the mortgage is normally dealt with by either selling the mortgaged property or from the proceeds of other assets.

A number of factors are taken into account by lenders when considering eligibilty for an Interest Only Buy to Let Mortgage, which may include;

• A minimum age requirement. Whereas a standard residential mortgage requires a borrower to be 18 years old, it is not uncommon for a lender to expect an applicant for a Buy to Let mortgage to be at least 21, or even 25 years old.
• Property portfolio limits may apply. Lenders will ask for details of all other Buy to Let properties and may restrict the number of mortgages with them to a maximum of 3 or 5. In addition, the total protfolio size will be assessed. For borrowers who have in excess of 10 mortgaged properties, it is likely that a specialist portfolio lender will be the best option.

Although it may be possible for a First-Time Buyer to apply for a Buy to Let Mortgage, many lenders will not process this on Interest Only. There may be exceptions with some of our more specialist lenders. Our Buy to Let specialists can access your situation and make a suitable recommendation.

The main advantages of an Interest Only Buy to Let Mortgage from a landlord point of view are the potential for tax efficiency and flexibility.

From a flexibility angle, the monthly payments will be lower than a traditional Capital and Interest Mortgage. This means that the mortgage balance does not reduce on a monthly basis and a strategy needs to be in place for repayment of the loan in the future. This may be dealt with by selling the property to clear the loan at the end of the term and may then provide a “profit” as a result of house price inflation.

Alternatively, the mortgage may be repaid by realising other assets will allow the landlord to retain the property for the future. Interest Only Buy to Let Mortgages may offer tax benefits depending on the individual financial circumstances of each borrower. Although the income tax legislation is changing, which is likely to reduce the benefit for some landlords, there may still be some advantages. While we are able to provide the advice relating to your borrowing needs, we do not offer tax advice.

By administering a Interest only Buy to Let Mortgage, you need to be aware that the mortgage balance is not reducing each year in the same way as a Repayment mortgage. As a result, the interest charged on the ongoing outstanding balance does not reduce. This effectively means that over the longer term, a greater amount of interest is actually charged.

A long term repayment strategy needs to be considered from the outset. some landlords may choose to invest in a repayment vehicle plan with a view to this having grown sufficiently over the years to produce funds to clear the mortgage and allow the property to be retained for ongoing income generation. Investment performance will influence the end result and if there is not enough money available within the plan at the redemption date, additonal funds will need to be accessed from alternative sources.

Alternatively the plan may be to sell the property and clear the loan. This may not be something that the owner wishes to do at that time but without another option, there will be little choice.

At the end of the mortgage term, the lender will expect the full mortgage balance to be repaid. This can be planned for in a number of ways; the most common solution is for a landlord to sell the property and repay the loan from the proceeds, leaving any surplus from house price inflation to be used by the landlord. Throughout the term of the mortgage, alternative investments may be made with a view to growing a fund which will be sufficient to clear the loan at the end of term. This will allow the landlord to keep hold of the property and continue to enjoy the rental income.

Although the mortgage is on an Interest Only basis, there is no reason why lump sum “capital repayments” cannot be made during the term on regular or ad hoc basis, with view to clearing the loan by expiry date. This will be subject to the lenders criteria and care should be taken to avoid early repayment charges. Depending on the mortgage balance, value of the property and the age of the owner, it may be possible to refinance the mortgage onto another Interest Only mortgage with an extended term or possible convert to an Equity Release plan.

Interest rates for Buy to Let Mortgages may vary from lender to lender and depend on the size of the mortgage in relation to the property value and also on the term of any fixed rate period. Rates are constantly changing due to market conditions and lender appetite. By undertaking a full discussion and review of your circumstances and objectives, our expert Buy to Let Advisers will be able to find the best rate options for you.

Buy to Let Lenders tend to operate in a specialist environment and it is unlikely that there will be wide choice in the mainstream “high street”. Many of the high profile large lenders have a specific Buy to Let arm to their operations which may only be accessed though the intermediary market. By discussing your current situation and requirements with one of the experts,we will be able to source options from the whole market to ensure you get a great deal.

Buy to Let Mortgage advice is a very specialist area. In addition to some familiar providers, there are many lenders whose names may not be instantly recognisable but are nevertheless major players in this market and tend to only accept applications through mortgage brokers and intermediaries.

At IMC Mortgage Brokers we have specialist advisers with access to the whole of the market. By discussing your requirements with us in detail you can be confident that a suitable lender and mortgage deal can be found for you.