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Interest-only mortgages

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What is an interest-only mortgage?

An interest-only mortgage lets you pay just the interest each month, meaning your monthly payments are lower. However, you’ll need a plan to repay the full loan at the end of the term.

How do interest-only mortgages work?

When you get an interest-only mortgage, you’ll need to agree to a final repayment plan with the lender. This is so they're confident you can repay the loan at the end of the mortgage term.

Monthly payments on an interest-only mortgage are much lower than those on a capital repayment mortgage since the latter includes both loan repayment and interest.

It’s less likely that you’ll use an interest-only mortgage to buy your own home as they're mostly used for buy-to-let purchases. 

How to get the best interest-only mortgage

Getting the best interest-only mortgage isn’t just about finding the lowest rate, it’s about presenting yourself as a low-risk borrower so lenders are willing to offer you their most competitive deals. Here’s how to put yourself in the strongest possible position:

  • Increase your deposit (lower LTV = better rates): Putting down a larger deposit reduces your loan-to-value (LTV), which lowers lender risk and can unlock more competitive deals. Most interest-only mortgages start at around 25% deposit, but the best options are typically available at lower LTV tiers such as 75% or below.
  • Strengthen your repayment strategy: Lenders need confidence that you can repay the full loan at the end of the term, so having a clear and credible repayment plan is essential. This could include property sale, investments, pensions, or other assets, and the stronger and more realistic your plan looks, the more favourable your mortgage options may be.
  • Improve your credit score: A stronger credit profile can improve your chances of approval and widen the range of lenders available to you. Focus on reducing existing debt, avoiding missed payments, correcting any errors on your credit report, and ensuring you’re registered on the electoral roll before applying.
  • Use a broker (access to more lenders): Brokers like our partner, Mojo, can access a wider panel of lenders, including specialist providers that don’t always deal directly with customers. This can be especially useful for interest-only mortgages, where criteria can be stricter and vary significantly between lenders.
  • Compare multiple lenders before applying: Different lenders assess risk in different ways, so comparing options helps you understand what deals and criteria you’re likely to qualify for. Taking time to review multiple lenders can help you avoid unnecessary costs and improve your chances of securing a suitable mortgage.

Am I eligible for an interest-only mortgage?

To qualify for an interest-only mortgage, you’ll need to meet a lender’s affordability checks, age limits, and specific eligibility criteria. Requirements vary, but most lenders typically look for:

  • Larger deposit (around 25% minimum) – Most lenders cap borrowing at around 75% loan-to-value (LTV), meaning you’ll usually need at least a 25% deposit or equivalent equity if remortgaging.
  • Minimum income requirement – Many lenders require a higher income than standard mortgages, often around £50,000 - £75,000 for single applicants or around £100,000 combined for joint applications, depending on the lender.
  • Approved repayment strategy (repayment vehicle) – You must show a credible plan for repaying the loan at the end of the term, such as savings, investments, pension funds, or property sale. Lenders will assess and verify this plan before approval.

Interest-only mortgages for residential properties usually have stricter criteria than buy-to-let, so eligibility can be more limited.

Because requirements vary widely between lenders, it’s often helpful to speak to a mortgage broker like our partner Mojo Mortgages, who can assess your circumstances and confirm what options may be available to you.

Repayment strategies lenders accept for interest-only mortgages

The plan you use may be different depending on whether you’re using the interest-only mortgage for a residential or commercial reason.

It also depends on which repayment types your chosen lender allows. Some of these include:

  • Inheritance
  • Sale of the property you’ve bought
  • Investment portfolios (ISA, stocks)
  • The lump sum payment from your pension plan
  • Other property equity

Most lenders also like to check regularly that your repayment plan is going to be valuable enough to repay the debt at the end of the mortgage term. This could be by:

  • Checking that your home is increasing rather than decreasing in value
  • Monitoring the growth of your investments or pension plan – whatever you’ve chosen to repay the loan with

What our mortgage expert says

"One of the most overlooked parts of an interest-only mortgage is that lenders don’t just assess what your repayment plan is, but how robust it is if conditions change. A projected investment return or future property sale isn’t enough on its own, lenders increasingly want to see resilience if markets dip or timelines shift. The strongest applications usually include a ‘Plan B’, such as combining investments with savings, overpayments, or other assets, rather than relying on a single repayment route."

Ashlyn Trojnacki - Mortgage expert
Mortgage Expert Confused.com logo

What happens if I can’t repay my interest-only mortgage?

Some lenders may allow you to extend your mortgage if you can show you’ll be able to repay it later, or you may be able to remortgage with your current lender or a new one. This usually means switching to a capital repayment or part-and-part mortgage.

As a last option, you may need to sell the property, and if its value has fallen, you’d still be responsible for any shortfall.

Advantages and disadvantages of interest-only mortgages

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Advantages of interest-only mortgages:

  • Cheaper monthly repayments – You only pay the interest each month, which can make repayments more affordable compared with a standard repayment mortgage.
  • Improved cash flow – Lower outgoings can free up money for other priorities such as investments, savings, or managing variable income.
  • Flexibility for certain borrowers – Can suit people with strong repayment plans (e.g. investments, property sale, or bonuses) or those expecting future income growth.
  • Popular for buy-to-let investors – Often used by landlords to maximise rental yield and manage portfolio cash flow more efficiently.
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Disadvantages of interest-only mortgages:

  • You pay more interest overall – As interest charges don’t reduce over time, the total interest you pay is higher than on a capital repayment mortgage at the same interest rate.
  • Stricter lending criteria – Higher income requirements, larger deposits, and detailed repayment plans are usually required.
  • Fewer lenders offer them for residential purchase – This means less choice and competition, so usually higher interest rates.
  • Repayment risk at the end of term – You must have a credible plan to repay the loan in full, or you may need to remortgage, extend, or sell the property.

Mojo's customers say:

“I was abit apprehensive at first using an online broker, but this was simple and easy to understand with no jargon or hidden fees.”

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“Great helpful service - worked with me to find best option for me in the market.”

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Tips & guides on interest-only mortgages

The Bank of England base rate explained

The Bank of England base rate can affect how much interest you pay on your mortgage. Here’s how it works.

APRC explained

When looking at mortgages, you’re likely to come across your fair share of jargon and acronyms. Another one to add into the mix is APRC.

Early repayment charges explained

An early repayment charge, or ERC, is a fee that’s paid to your mortgage lender for paying off some types of mortgages early.

Should I take a mortgage holiday?

If you’ve taken a mortgage holiday or if you’re thinking about taking one, read on.

See all mortgage guides

Need more help?

What is the average interest-only mortgage rate in the UK?

Rates vary depending on your deposit and financial profile, but are typically higher than repayment mortgage rates.

Who offers the best interest-only mortgages?

The best option depends on your circumstances, including your deposit, income and long-term plans.

Can I get an interest-only mortgage with bad credit?

It's possible but it's very difficult to achieve as lender's have a strict criteria. Lender's want to see that you have a solid repayment plan and if you have bad credit they may see you as unreliable.

If you do manage to get an interest-only mortgage with a specialised lender, you're likely to be charged a much higher rate of interest than someone with a good credit score.

Can I change my interest-only mortgage to a capital repayment mortgage?

Yes, you can. In fact, most mortgage lenders allow you to switch from an interest-only to a repayment mortgage without paying any fees.

This is because it’s in their best interest as you’ll be moving to a repayment method that is less risky to them.

This is also why it's more difficult to switch in the opposite direction from repayment to interest-only, unless it’s a temporary move.

YOU SHOULD THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME/PROPERTY. YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. 

The Financial Conduct Authority does not regulate mortgages for commercial or investment buy-to-let properties. 

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To contact Mojo by phone, please call 0333 123 0012.

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