I am looking at investing in property as a buy to let, however my admittedly poor research has brought up a question regarding rental income.

I assumed that my rental income could pay off my mortgage monthly repayments (as part of a repayment mortgage) and then I would be taxed on the part left over. However I have been informed that only the interest part of the repayments would be tax deductable whilst the capital repayment would not, meaning that I would be paying a lot more income tax than I assumed.

If this is correct then surely the UK and a large proportion of Western markets are untenable as buy-to-let markets given that rental yields are at best even with mortgage rates before income tax??

Most buy to letters take out an interest only mortgage on which they claim full tax relief. With interest rates what they are at the moment, it is very difficult to get the figures to stack up as rents will often not even cover interest only payments. There is no way that rents would cover a repayment mortgage.

Remember that oyu have an allowance of around 4,600 that you can earn from rental before you ahve to pay tax.