How interest-only mortgages work
On an interest-only mortgage your monthly payment covers the interest and nothing else. The balance you borrowed at the start is the balance you owe at the end — the full amount falls due as a single lump sum on the final day of the term.
The monthly saving is substantial. On a £250,000 mortgage the interest-only payment can be around 40% lower than the equivalent repayment payment, which is precisely why the product needs to be approached carefully. The money not paid each month isn't saved, it's deferred, and it accumulates into an obligation that has to be met.
What lenders require
Since the mortgage market review, interest-only lending on residential properties has been tightly controlled. Lenders must be satisfied you have a credible, evidenced plan to repay the capital — a repayment vehicle — and they check it at application and sometimes during the term.
Acceptable vehicles vary by lender but commonly include investments such as ISAs, pensions or endowments, with the lender applying a conservative growth assumption; the sale of the property itself, subject to a minimum equity requirement and often a minimum property value; or the sale of another property or asset. Vague plans — an expected inheritance, a bonus you hope to receive — are generally not accepted.
Maximum LTVs are lower too, typically capped around 50–75% depending on the lender and the vehicle, and income requirements are often higher than for a comparable repayment mortgage. In practice this is a product aimed at borrowers with substantial equity and assets rather than at making an unaffordable purchase affordable.
Part-and-part as a middle ground
Many lenders will structure a mortgage as part repayment and part interest-only. It's a genuinely useful option that gets overlooked: you reduce the monthly payment relative to full repayment, while ensuring a meaningful portion of the capital is cleared over the term rather than deferred in full.
It also tends to be easier to arrange. The repayment vehicle only needs to cover the interest-only portion, so a smaller or more conservative plan can satisfy the lender.
If you're taking interest-only for a temporary reason — a period of reduced income, or a business needing capital for a few years — it's worth agreeing at the outset how and when you'll move to repayment, and checking whether the lender allows that switch without a new application.
The risk to be clear-eyed about
Interest-only mortgages taken out decades ago are still reaching maturity with the capital unpaid, because the endowment or investment behind them underperformed. When that happens the options are narrow: extend the term if the lender agrees, remortgage if you still qualify, sell the property, or face repossession.
The lesson isn't that the product is bad — it's that the repayment plan needs reviewing regularly rather than being set up and forgotten. Check every few years whether the vehicle is still on track for the amount it needs to cover, and act early if it isn't. A shortfall spotted with fifteen years to run is manageable; the same shortfall spotted with two is not.
Common questions
What is an interest-only mortgage?
A mortgage where your monthly payment covers only the interest, leaving the full amount borrowed outstanding at the end of the term. You need a separate plan to repay that capital when the term ends.
Can I still get an interest-only mortgage?
Yes, from a range of lenders, but the criteria are strict. You'll need an evidenced repayment plan, generally a lower loan-to-value than a repayment mortgage would allow, and often a higher income.
What counts as a repayment vehicle?
Commonly ISAs, pensions, endowments or other investments assessed with conservative growth assumptions, or the sale of the property subject to minimum equity and value requirements. Expected inheritances and hoped-for bonuses are usually not accepted.
Can I switch from interest-only to repayment?
Most lenders allow it, and switching earlier costs less each month than switching later because the capital is spread over more remaining years. Ask about the process before you need it — some lenders treat it as a simple change, others as a full application.
What is a part-and-part mortgage?
A mortgage split so that part is repaid over the term and part is interest-only. It lowers the monthly payment compared with full repayment while ensuring some of the capital is cleared, and often needs a smaller repayment vehicle to satisfy the lender.
How current are the rates on this page?
We collect product data from the lenders we track from their published information and refresh it regularly, so the interest-only products above are the most recent we've seen from the lenders that offer them. Lenders can withdraw or reprice a deal at any time, sometimes with a few hours' notice, and a rate shown here is not an offer — availability depends on your circumstances, the property and the lender's own criteria.