UK BTL vs residential mortgage cost.
Residential repayment
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BTL interest-only
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Two mortgages that are not the same animal
Residential and buy-to-let mortgages look similar but behave very differently, and this tool puts them side by side. A residential mortgage is almost always on a repayment, or capital-and-interest, basis: each monthly payment chips away at the balance so the loan is gone at the end of the term. A buy-to-let mortgage is usually interest-only, meaning you pay just the interest each month and the full balance is still owed on the last day. The calculator therefore amortises the residential loan over your chosen term but applies a flat interest-only payment to the BTL, which is why the BTL monthly figure looks deceptively cheap.
This is a comparison for someone deciding how to finance a property, or a landlord weighing the cash-flow appeal of interest-only against the reality of a balance that never shrinks. It is about monthly cost and structure, not tax, so read it alongside a yield or Section 24 calculator for the full investment picture.
A £200,000 loan, both ways, over 25 years
Using the defaults, a £200,000 loan, a 5.0 percent residential rate on repayment, and a 5.8 percent buy-to-let rate interest-only, over 25 years.
| Basis | Rate | Monthly payment |
|---|---|---|
| Residential repayment | 5.0% | £1,169 |
| BTL interest-only | 5.8% | £967 |
| Balance left after 25 years | BTL | £200,000 |
Notice the twist. The BTL is cheaper each month at £967 despite a higher rate, purely because you are not repaying any capital. The chart shows that monthly gap, then the elephant in the room: the £200,000 still outstanding on the BTL at the end.
Why landlords accept a higher rate
Buy-to-let rates typically sit half a point to a point and a half above residential rates for the same loan-to-value. Lenders price in the extra risk of a tenanted property: void periods when no rent comes in, the chance of arrears, and wear from tenants. There is also usually a chunkier arrangement fee, sometimes a percentage of the loan rather than a flat figure, which this tool does not include but which materially affects the true cost. Landlords accept all this because interest-only keeps monthly outgoings low and maximises the rental surplus, and because the interest is a business cost set against rent.
The affordability test you cannot ignore
A residential mortgage is sized against your income, broadly a multiple of salary. A buy-to-let is sized against the rent through the Interest Coverage Ratio. Lenders require the monthly rent to cover the mortgage interest by a margin, commonly 125 percent for a basic-rate landlord and often 145 percent for a higher-rate landlord, and they stress-test that interest at a notional rate well above the pay rate, frequently around 5.5 percent or more. On the £200,000 example, a lender stressing at 5.5 percent would want rent comfortably above £1,330 a month at the 145 percent ratio before approving the loan. If the rent does not clear the ICR, you either borrow less or put in a bigger deposit, which is why most BTL deals need at least 25 percent down.
How do I actually repay an interest-only buy-to-let?
You have three realistic routes. Sell the property at the end of the term and clear the loan from the proceeds, hoping capital growth has done some work. Refinance onto a new interest-only deal, which depends on lender appetite and your age at that point. Or build a separate repayment vehicle, such as investments or other savings, to clear the balance. Lenders increasingly ask for a credible repayment strategy up front, so going in with no plan beyond do it later is a mistake.
Can I get a residential interest-only mortgage too?
You can, but it is far less common and lenders are cautious after past mis-selling. Residential interest-only usually requires significant equity, a high income, and a demonstrable repayment plan such as investments or downsizing. Most residential borrowers are on repayment by default. This calculator assumes the standard pattern, residential on repayment and BTL on interest-only, because that is what the overwhelming majority of borrowers will actually be offered.