A short guide to how each works, who they tend to suit, and why leverage is the real reason landlords often choose interest-only.
Repayment mortgages pay down the loan and the interest together, so the balance shrinks every month and you own the property outright by the end of the term. Interest-only mortgages cover just the interest — the balance never falls on its own, and you need a separate plan to clear it (sell, remortgage, or pay a lump sum) when the term ends.
Most residential homeowners use repayment. Most buy-to-let landlords use interest-only — not because it's cheaper overall, but because of leverage.
Each monthly payment is split between interest and a small chunk of the capital. Early on, most of the payment is interest; later, more of it goes toward capital, so the balance falls faster as the term progresses. By the end (typically 25–35 years), the loan is fully cleared.
See this worked out in the mortgage calculatorThe monthly payment covers interest only, so it's lower than the repayment equivalent on the same loan. The capital you borrowed stays the same throughout the term. You're required to have a credible plan to repay it in full at the end — lenders will ask what that plan is before approving the mortgage.
This is the part that explains why landlords gravitate toward interest-only even though it "costs more" in pure interest terms over the life of the loan.
Leverage means using borrowed money to control an asset worth far more than your own cash outlay. A £25,000 deposit on a £100,000 property is 4x leverage. If that property rises in value by 5%, you've gained £5,000 — a 20% return on your £25,000 deposit, not 5%. The mortgage debt doesn't shrink that calculation; only the property's growth and the rent matter to your return on cash.
Keeping monthly payments low with interest-only lets a landlord hold onto more cash to use as deposits elsewhere, rather than tying it up paying down one mortgage early. The trade-off is risk: leverage amplifies losses in exactly the same way it amplifies gains, and an interest-only landlord is more exposed if prices fall or rates rise, since the capital debt is still sitting there in full.