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First-time buyer interest only

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 6, 2023

First-time buyer interest only

Interest-only mortgages used to be a popular way for people to climb the property ladder. They were affordable and offered just the interest monthly repayments.

Although lenders’ appetite for this type of borrowing has declined since 2008’s financial crash, it was once a popular and affordable way for people to get on the property ladder while keeping their monthly repayment mortgages low.

This article will discuss interest-only mortgages as a viable option for first-time buyers. It will also explain the eligibility criteria.

We’ll also explain why our whole-of-market mortgage brokers can help improve your chances of success.

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Is it possible to get an interest-only mortgage for a first-time buyer?

Although it is possible, it is not simple as only a few lenders offer them. Contact our mortgage brokers today for mortgage advice. We have a few mortgage providers lending interest-only mortgages and a first-time buyer mortgage term.

Many providers do not approve this type of loan because they are concerned about defaulting on their repayments and being unable to pay the total amount due.

Interest-only loans are considered riskier than monthly repayments. This means that eligibility criteria are more stringent.

If you have the right circumstances, this can be a great way to get your first steps on the property ladder. However, a mortgage broker can help ensure the deal is right for you. Contact us today. We will find a mortgage lender suitable for you.

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Are interest-only mortgages a good choice for first-time buyers?

This will depend on your circumstances, but they are certainly worth considering. An interest-only mortgage is a great way to get on the property ladder. You can switch to repayment terms if you’re in a better financial position.

Interest-only may be a solution if, for instance, you inherit a large sum of money which will amount to a substantial mortgage. However, you are concerned about the monthly cost and rising interest rates.

Before you take out your first mortgage, you should speak with an independent mortgage broker.

Which type of deal might you be eligible for?

You can borrow up to 100% on a repayable mortgage, but approval for interest-only loans usually requires a deposit of at least 20%. Some lenders may require a minimum of 20% deposit.

Rates start at around 2.15% for a deposit of 40%

You can see that a higher deposit will result in a lower interest rate. However, the rate is the same regardless of whether you choose repayment or interest-only terms. A repayment deal will allow you to pay much less over the mortgage term. This is because your capital balance, the amount upon which interest is calculated, decreases with each payment.

Other than a large deposit, eligibility for interest only might depend on:

  • Income: Lenders may have a minimum income threshold for single or jointly borrowers.
  • Repayment mechanism: Clear plans are required to determine how you will pay off the loan after it expires. This includes selling the property or changing mortgage types.
  • Bad Credit history: A first-time buyer may have difficulty getting an interest-only mortgage because there aren’t many lenders. Multiple applications can damage your credit file, so it is essential to identify the right lender first.

Experience: Since interest-only lending is not a preferred method of lending, providers may be reluctant to approve a mortgage for a first-time home buyer. This is usually reserved for people who have had experience in mortgage borrowing.

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How much could you borrow?

Lenders usually limit the amount you can borrow to 4.5 times your annual salary. If you meet all criteria, your maximum loan amount would be £225,000 for a couple earning a combined salary of £50,000 per year. Professionals can borrow up to 7x their income if they have the right circumstances.

Getting approval for higher income multiples may be difficult if your borrowing is interest-only.

Use our mortgage affordability calculator to find out an estimate of how much you can borrow.

Other options instead of interest only for a FTB

Interest-only borrowing has the main advantage of keeping monthly payments low. If you want to purchase your first home but have tight finances, interest-only borrowing is not the best way to make your mortgage affordable.

Another option is to try:

  • Repayment mortgage for a longer term: You can take out a mortgage for up to 40 years and then reduce your mortgage term by building equity and remortgaging.
  • A mix of mortgages and loans This option is the middle ground that can offer you the best of both worlds. To make your monthly payments affordable, a portion of your loan will be interest-only. The rest of your loan will be on interest-only terms so that you can reduce your balance and build equity.
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Is it possible to get an interest-only mortgage buy-to-let as a first-time buyer?

Possibly. You can apply for most interest-only mortgages if you meet the lender’s criteria.

Most likely, you will need:

  • Minimum 40% deposit
  • Clean credit file
  • You must have sufficient income during unoccupied periods to pay the monthly repayments.

Some borrowers can’t afford to buy a home in their area, so they look for an alternative.

This is something you should consider if you are viewing it. Lenders will require that your rental income cover at least 125% of the mortgage payment. In some cases, as high as 140%.

For first-time buyers, most lenders will prefer that you have some experience in letting. You will have a smaller pool of lenders and need to present a solid business plan to convince specialist lenders that your investment is sound.

Before you apply, speak with a mortgage broker if you are considering this route.

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How a broker can assist first-time buyers

There are very few lenders in this market, so finding one that matches your risk profile and structures your application to get approved will be complex.

It is best to talk to an experienced broker to assess your situation and recommend the best action.

They deeply understand this type and will offer them to first-time buyers. This will enable them to determine if an interest-only mortgage is possible for you quickly.

Are you eligible for one of these mortgages through the Help to Buy program?


Talk to a broker if you think saving enough money for an interest-only mortgage deposit will take years.

Match with an interest-only mortgage expert for first-time buyers

It is best to consult an independent mortgage broker before you entertain the idea of applying for an interest-only first-time mortgage. You will likely be rejected or receive a costly offer if you fail to do this.

Our broker matching service will pair you up with an interest-only mortgage advisor who can help you navigate the market and determine which forms of borrowing might be most appropriate for your situation.

We’ll start by having a short phone conversation to get to know you and your financial plans. Then we’ll find the right broker to help you find the best deal.

To arrange a no-obligation chat, contact us today.

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