| Monthly payment | Interest only; the balance does not fall |
|---|---|
| At the end of the term | The full loan must be repaid |
| Repayment strategy | Required for residential interest-only |
| Loan to value | Often lower limits than repayment mortgages |
| Buy-to-let | Interest-only is common |
How does an interest-only mortgage work?
You pay the interest each month but none of the capital. If you borrow £400,000 interest-only, you still owe £400,000 at the end of the term. On a repayment mortgage, the balance falls to zero.
| Repayment | Interest-only | |
|---|---|---|
| Monthly payment | Higher | Lower |
| Balance at end of term | £0 | Full original loan |
| Total interest paid | Lower | Higher |
| Repayment plan needed | No | Yes |
Who can get a residential interest-only mortgage?
Lenders usually offer residential interest-only to borrowers with substantial equity, higher incomes or significant assets. Many set a minimum income or a maximum loan to value, often lower than for repayment mortgages.
Affordability is still tested, often on a repayment basis or at a stressed rate. Interest-only is common for high-value and private bank lending, where borrowers hold other assets.
How do lenders assess affordability on interest-only?
Lenders still check you can afford the mortgage, not just the interest. Many assess affordability as if the loan were on a repayment basis, or at a stressed interest rate. This protects you if you later need to switch to repayment.
Some lenders set a minimum income for interest-only, or a minimum level of equity. Others look at your wider wealth, including investments, pensions and other property. Private banks often take a holistic view and may want you to place assets under their management.
Expect the lender to ask for evidence of your repayment strategy at application, such as recent investment statements or pension forecasts.
What counts as a credible repayment strategy?
Lenders need a realistic plan to repay the capital. They will not accept hoped-for inheritances or simply assume house prices will rise.
- Sale of the property, with enough equity to downsize (rules vary by lender)
- Stocks and shares ISAs and other investments
- Pension lump sums
- Sale of other property, such as buy-to-let
- Regular overpayments or a switch to repayment
Under FCA rules, you are responsible for keeping the plan on track. Lenders may check in during the term.
Lenders usually want evidence that the strategy could realistically repay the loan by the end date. For investments, they may assume modest growth or use current values only. Review your plan every year or two, and top it up if it falls behind.
What is a part-and-part mortgage?
A part-and-part mortgage, sometimes called a split mortgage, splits the loan. One part is on repayment, the other is interest-only. Monthly payments sit between the two, and you need a repayment plan only for the interest-only part.
It can suit people with a partial repayment vehicle, or those who want lower payments now and some certainty of reducing the debt. Many lenders let you change the split over time, for example moving more onto repayment as income rises.
Why is interest-only common for buy-to-let?
Most buy-to-let mortgages are interest-only. Landlords keep monthly costs low and plan to repay from the sale of the property. ICR affordability tests are based on interest-only payments. See buy-to-let affordability.
Most buy-to-let lending for investment is not FCA-regulated. The capital is still owed, so falling prices can leave a shortfall.
What are the risks of an interest-only mortgage?
- You pay more interest overall, because the balance never falls
- Investments may underperform and leave a shortfall
- House prices may fall, reducing equity for downsizing
- Remortgaging later in life may be harder
- Rate rises affect the whole balance for the full term
Interest-only can still be a sensible choice. It may suit borrowers with large, reliable assets, or those who expect a known sum such as a business sale, and want flexibility. The key is a realistic plan you review regularly.
Your home may be repossessed if you do not keep up repayments or cannot repay the loan at the end.
What can you do at the end of an interest-only term?
Start planning years before the end date. Lenders and advisers generally find more options are open with five or ten years left than with a few months. Options may include selling, using savings or investments, remortgaging, extending the term, switching to repayment, or a retirement interest-only or lifetime mortgage.
In June 2026 the FCA consulted on giving lenders more flexibility on interest-only, including which repayment strategies they can accept. These were proposals at the time of writing. Check the current rules before relying on them.
Sources
Checked October 2026. Rules and tax treatment can change, so confirm the current position before acting.
- MoneyHelper: Ways of repaying an interest-only mortgage
- FCA: Proposals to help more people access mortgages (June 2026)
Frequently asked questions
Can I still get an interest-only mortgage in 2026?
Yes. Many lenders offer residential interest-only to borrowers with enough equity, income or assets, and a credible repayment strategy. Criteria vary widely. Interest-only is also standard for most buy-to-let mortgages. Expect a larger deposit requirement and closer scrutiny of your repayment strategy than with a repayment mortgage. A broker can identify lenders whose rules fit your assets.
Can I use the sale of my house as a repayment strategy?
Some lenders accept sale of the property, usually only if you have substantial equity and the property is above a minimum value. They want confidence that you could still buy somewhere suitable afterwards. Policies vary by lender. Some also set a minimum equity amount, so the remaining balance after sale is enough to buy elsewhere.
What happens if I can't repay my interest-only mortgage?
Speak to your lender early. Options may include extending the term, switching part or all to repayment, selling, or a retirement interest-only mortgage. If none work, the lender may ultimately take possession of the property. Acting early gives you the widest choice.
Is interest-only cheaper than repayment?
Monthly payments are lower, but you pay more interest over the term because the balance never falls. You also still owe the full loan at the end. It is cheaper month to month, not overall. Compare the total cost over the term before deciding.
Can I switch from interest-only to repayment?
Usually yes, with your current lender or by remortgaging. Monthly payments will rise. If you are not borrowing more, some lenders allow the switch without full affordability checks through a product transfer. Ask your lender for illustrations so you can see the new payment before you commit. A part-and-part split can soften the increase.
Can I get an interest-only mortgage as a first-time buyer?
It is less common, but some lenders will consider it with a large deposit and a credible repayment strategy. Most first-time buyers take repayment or part-and-part mortgages. The FCA consulted in 2026 on rules that could make interest-only more accessible; check the current position.
What is a retirement interest-only mortgage?
A retirement interest-only (RIO) mortgage is for older borrowers. You pay interest monthly, and the loan is usually repaid when the property is sold after death or a move into long-term care. Affordability is still assessed. Lenders set minimum age requirements, often 55 or over.
Will my lender check my repayment plan during the term?
Many lenders contact interest-only borrowers during the term to ask how the repayment plan is progressing. Respond to these letters. If your plan is falling short, talk to the lender or an adviser early, while more options remain open. Keep records of your investments' performance.
Important: This guide is general information, not personal advice. Rules, rates and lender criteria change; speak to an adviser about your circumstances. Your home may be repossessed if you do not keep up repayments on your mortgage.