Property Finance

Looking to purchase an investment property in the near future? Staying in the loop with investment property financing is imperative to success, compliance and making the most lucrative profit possible. Below, we’ve explored the three primary ways in which you can finance a property investment, alongside a range of additional resources to help you on your way.

A Capital and Interest Mortgage, also known as a Repayment Mortgage, requires the investor to pay back both the loan amount (capital) and the interest over the mortgage term. By the end of the period, the property is fully owned by the investor.

This type of investment property finance is suited for those who are financially stable and can manage higher monthly payments. Since rental income may not always cover the mortgage payments, investors often need additional liquidity to supplement costs. However, this method allows you to build equity and maximise long-term returns on capital employed (ROCE).

Pros & Cons of Capital and Interest Mortgages

✅ Strongest return on capital employed over time
✅ Builds equity while paying off the mortgage
❌ Lower rental returns during repayment period
❌ Less flexibility in case of void periods or maintenance expenses

An Interest-Only Mortgage is a common method of financing an investment property, offering lower monthly payments as investors only pay the interest on the loan. The principal remains unpaid until the end of the mortgage term, when it must be repaid in full—usually through remortgaging, selling the property, or using savings.

This financing option is often chosen by investors looking for higher rental returns during the mortgage period. It provides flexibility, making it easier to build a financial buffer for maintenance costs and property voids.

Pros & Cons of Interest-Only Mortgages

✅ Lower monthly payments mean higher rental returns
✅ More flexibility to finance additional property investments
❌ Does not build equity during the mortgage term
❌ Requires a strategy to pay off the capital at the end of the term

A cash purchase is the simplest way to finance property investment, offering immediate full ownership with no need for mortgage financing. This method is often chosen by investors who have significant capital and want a hassle-free investment with high net rental yields.

While cash investment provides excellent short-term rental returns, it typically results in the lowest ROCE due to the large initial outlay. However, it remains a popular strategy for those looking to generate passive income quickly and avoid mortgage-related complexities.

Pros & Cons of Cash Investments

✅ High net rental returns from the start
✅ No mortgage complexities or interest payments
❌ Lowest return on capital employed due to high upfront investment
❌ Less accessible for investors without substantial capital

If you’re wondering how to finance your first investment property, there are several additional options beyond mortgages and cash investments:

• Bridging Loans – Short-term finance solutions ideal for purchasing properties that need refurbishment before refinancing with a mortgage.
• Buy-to-Let Mortgages – Specifically designed for landlords, offering tailored interest rates and lending criteria.
• Joint Ventures – Partnering with other investors to share financing and risk.
• Secured Loans – Using existing assets to secure funding for new investments.
• Crowdfunding – A modern approach to pooling investor funds for property acquisition.

Deciding between a repayment mortgage, interest-only mortgage, or cash investment depends on your financial situation and investment strategy. Investors looking for long-term capital growth may prefer repayment mortgages, while those seeking higher short-term rental income may opt for interest-only financing. Meanwhile, cash buyers benefit from a straightforward investment process with immediate ownership and rental returns.

Regardless of your approach, understanding how to raise finance for property investment is essential for building a successful portfolio. By selecting the right strategy, you can maximise returns while effectively managing risk and expense.