Should I choose interest only or repayment on a Buy to Let mortgage?

It’s really important to make the right decision here. Whether you’re going to pursue the venture on a repayment basis or an interest-only basis completely depends on your reasons for doing Buy to Let. If you’re just looking to make a monthly income from that property, nothing else, then it often makes sense to do it on an interest-only basis.

That means you only pay the interest to the lender. You wouldn’t be reducing the capital. So if you borrowed £200,000 on a 30 year mortgage, at the end of that term you would still owe that lender £200,000. You would either have to pay the mortgage back out of your own funds or by selling the property.

With interest only, the monthly payment is a lot lower, so you would make more money. You’d receive a monthly rent and only pay, say, a quarter of that for your mortgage.

However, if the property is a long-term investment, where you want to own it at the end of the term – for your children or for you to live in, for example, you should opt for a repayment basis. That way you have the guarantee that the mortgage is going to be repaid at the end of the term. Your monthly payment would be a lot higher and you might not make much profit, but the idea is that the tenants living in the property are paying the mortgage for you.

So it’s all about your reasons for wanting to do Buy to Let – to make money now or whether you want to own the property in the future.

How many Buy to Let properties can I own?

There’s no limit to the number of properties, but lenders will have a cap on how many properties you can have with them. Some lenders only allow three or four, some allow up to 10. When you’ve got multiple properties you become seen as a ‘portfolio landlord’ where your borrowing has to be spread across different lenders. You can own as many properties as you want, as long as you’re spreading the borrowing.

I work closely with quite a few investors. The one with the largest portfolio has 52 houses throughout the UK. It’s not uncommon to have between five and 10 these days because it’s very easy to do. The first property is the hardest one to get because you have to find a 25% deposit. Once you’ve done that you can keep going, providing market conditions allow. Property prices keep rising, so a few years down the line you should have a lot of equity. Then what you can do is remortgage and release equity to go and buy another one.

That way it’s easy to expand your portfolio. A lot of investors will alternate – they’ll do one property on a repayment basis and the next on interest only. That means they’re spreading their risk. Half their portfolio is generating a monthly income and the other half is an investment. They will own a string of properties at the end of their mortgage terms that aren’t costing them anything now.

It’s probably the safest form of investment, because the only commodity that’s pretty much guaranteed to increase at the moment is property.

Any final words of advice on Buy to Let mortgages?

The only thing I would add, as with all mortgages, is to use a broker. As I’ve said before, it is a minefield out there. There’s so much to consider. A broker can help you look at things differently. We look at things from a holistic point of view and there may be a more efficient way of doing things that you hadn’t even considered. So pick up the phone, speak to me and I’ll guide you through it.