Most BTL mortgages in the UK are interest-only. There is a good reason for that. Interest-only payments are lower, which means higher cashflow. And BTL investors typically plan to sell the property or repay the capital from savings rather than through monthly payments.
The calculation is the simplest in mortgage maths. Take your loan amount, multiply by the annual interest rate, and divide by 12. For a £150,000 loan at 5.5%, that is £150,000 multiplied by 0.055 divided by 12, which equals £687.50 a month.
Compare that to £918 for a repayment mortgage on the same terms. That is £230 a month more for repayment. Over a year, that is £2,760. Over five years, it is £13,800.
The catch is that with interest-only, you never reduce the loan balance. After five years, you still owe £150,000. If property prices have gone up, you can sell and repay the loan with equity left over. If prices have stagnated or fallen, you might have a problem.
Interest-only works when you have a clear exit strategy. If you are holding for capital growth, flipping, or BRR, it makes sense. If you are holding indefinitely with no plan to sell, you need a repayment vehicle.
The formula
M = P × (Annual Rate / 12)
A worked example
£150,000 at 5.5% IO
M = 150,000 × (0.055 / 12) = £687.50/month
Why this matters
Interest-only maximises cashflow but the capital never reduces. Use it when you have a clear exit strategy. If you plan to hold forever, consider repayment or a separate savings plan.
Property maths is not optional. If you want someone to run the numbers with you, Xelox Properties can help. We cover Portsmouth, Hampshire, and the South Coast.