Hi baistow - Firstly I am impressed that you can still find a property for sale at £25,000.
If that is the total sale price then there are a few things to consider before going down the mortgage route:
1. Many competitive products are only available for mortgage applications over £25,000 or £30,000 - so the availability of mortgage products if you did look for a mortgage on a £25,000 purchase would be very restricted.
2. Is the property in need of 'care and attention' , reflecting the low purchase price. If so, you may have problems getting a mortgage, or may find there are many conditions attached to the mortgage offer to ensure any property defects are put right before the Lender releases some of all of the mortgage.
Once you have considered these two issues, your friend is correct, that mortgage interest would be offset against rental income. In addition, the sale of a second property is liable to capital gains tax. Obviously if you own the property outright you will potentially make more profit on sale that you would if you had an outstanding mortgage on the property.
Another option is to use your £25,000 as a deposit for a more expensive property that may need less remedial work and would attract a higher monthly income.
However, the final decision has to be based on what makes you feel most comfortable. If you have seen any of my other pieces of advice, you will know my recommendation is always to talk to a mortgage expert. That way you can discuss all the financial options in an informed manner and then make a choice that is best suited to your own circumstances.
Best Wishes - and thanks for the question.
Louise