A fixed rate buy-to-let mortgage locks your interest rate for a set period, typically two or five years. During that period, your monthly payment stays the same regardless of what happens to interest rates. This makes financial planning much simpler, particularly if your rental income is your margin after costs. At the end of the fixed period, your mortgage reverts to the lender's standard variable rate unless you remortgage.
Tracker mortgages follow the Bank of England base rate and move directly with it. They often start at a lower rate than equivalent fixed products. Some tracker products have no early repayment charges, which gives you flexibility to sell or remortgage without penalty. The risk is that if the base rate rises, so does your payment, which can compress your rental margin.
Interest-only mortgages are by far the most popular choice among experienced landlords. On an interest-only mortgage, your monthly payment covers only the interest, not the capital. This keeps monthly outgoings low and maximises rental cashflow. At the end of the mortgage term, you owe the full original loan amount. Most landlords plan to repay this by selling the property or remortgaging. Lenders are generally comfortable with interest-only for buy-to-let, as landlords are expected to have an investment strategy.
