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Fixed-rate interest-only mortgages

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 6, 2023

Fixed-rate interest-only mortgages

Interest-only mortgages are less common than they were in the past. The good news is that many buyers can now choose this product from a growing number of mortgage lenders.

This article will discuss the availability of interest-only mortgages, interest-only mortgage rates, their uses, and how to get the best interest-only mortgage deal.

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What is an interest-only mortgage?

An interest-only mortgage, as you might guess, is a typical home loan that repays the interest each month. The amount borrowed will remain due at the end of the mortgage term. This must be paid in full.

This can be a great way of keeping costs low over the life of your mortgage. However, monthly payments will be much lower than the total amount you pay to repay capital and interest. As a result, you’ll end up paying more overall.

Mortgage interest is charged on the entire amount you owe. If the amount doesn’t decrease, the claim will not be affected.

You must have a reliable repayment method (method of loan repayment) to repay the lender any original capital borrowed at the conclusion of the term. The average period is 25 years. However, most lenders will require you to agree to your repayment plan as part of the application process. Each lender will have its list of acceptable repayment vehicles. These can include resales of the property, investments, or savings.

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Are they still available to residential properties?

They are available, but they aren’t as easy as residential mortgages. The lending criteria for them tend to be more strict than residential mortgages.

Lenders have been less willing to provide interest-only mortgages for residential properties since 2008’s financial crisis, but they continue to offer them almost exclusively to buy to let investment purchases. However, interest-only mortgages for residential properties have been more common recently, with more stringent criteria.

There are often significant equity and deposit requirements and high-income thresholds for residential purchases.

This type of mortgage is only available to wealthy individuals. However, if you meet these criteria, an interest-only mortgage can be used to purchase residential property.

Purchase a second-home

You may be able to get interest-only mortgages from some lenders, but you might need to consult a specialist. The criteria for residential purchases may differ from those that allow them. Therefore, a higher deposit might be necessary to get a second mortgage.

It may be possible to obtain a regulated buy-to-let mortgage from some lenders in certain situations, such as when buying a second house for a family member. Our interest-only specialists will be able to point you in the direction of lenders who are willing to consider such a purchase.

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How much could you borrow

Many factors will affect the amount you can borrow, including the purpose of your mortgage. The potential rental income of an investment property is the primary determinant of how much borrowing you can make. The multiple of your payment will determine the amount you can borrow to purchase a residential property. However, the loan-to-value (LTV) offered for residential repayment mortgages with the same income is likely lower.

The mortgage affordability calculator can help you determine how much loan you might qualify for.

After trying it, why not speak to one of our mortgage brokers who specialise in this type of home loan?

Criteria for eligibility

Lenders have different criteria, but they will usually be more stringent for residential purchases. The following requirements are expected of you by lenders:

  • Income and affordability – You will need to show that you can afford the repayments and that your income is at least the minimum required by the lender for this type of mortgage.
  • Credit history – Your credit score will have a less significant impact on the outcome of your mortgage application than if you apply for a capital repayment mortgage. This is especially true for buy-to-let mortgages. But, credit problems could still prove to be a problem. There are lenders for bad credit and brokers that specialise in this area.
  • Age – Lenders have minimum and maximum age requirements. However, some interest-only mortgages, such as the RIO ( Retirement Interest-only), can be tailored for older borrowers. Some lenders do not have a maximum age requirement.
  • Experience – Lenders will prefer to see previous landlord experience, especially in the case of HMO (house with multiple occupancies) mortgages. Although some lenders will accept first-time landlords in certain instances, they are more likely to be specialist providers.
  • Deposit – LTV (loan-to-value) is a lower amount than that offered for repayment mortgages. This makes the deposit requirement higher. This can vary from lender to lender, and your circumstances may dictate that a 25% deposit is required for a buy-to-let property. For residential properties, it might be as high as 50%.
  • Type of property – Lenders are cautious about lending on nonstandard construction properties. A specialist lender is required if you are looking to buy a timber-frame or listed property.

Repayment Term – This is the one that will most likely influence a lender’s decision regarding interest-only mortgages. This is a vast array of options, and a broker who has experience in this field will be able to help you select the best choice for your situation.

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Acceptable repayment options

A reliable repayment plan is essential for an interest-only mortgage application. Lenders may be more accommodating to your other eligibility criteria if they feel that your chosen repayment strategy is sound.

As investment properties are not regulated, there is no requirement for a specific repayment vehicle. However, it is common for landlords to sell the property or borrow money from other properties.

Each lender has different criteria for acceptable repayment options. One lender can approve you even though another declined you due to your choice. While some lenders will accept multiple repayment options against a single purchase, each option may have a minimum acceptable price.

You will need to show evidence in each case of your strategy. This could include any of these options:

The property can be sold

A popular way to repay your loan is to sell the property, especially if you invest in properties. A homeowner might decide to sell their residential property after a long mortgage term. This could be done by downsizing to an apartment of lower value and then using the equity to repay the original loan. Consider that lenders may require a minimum equity requirement to accept this.

Other assets may be sold

You might consider selling a second property (or alternative) from your portfolio to repay the lump sum. Lenders may accept alternative high-value assets such as artwork and vehicle fleets.


There are many investment options that can be considered acceptable repayment vehicles.

  • ISA
  • Stocks and/or Shares
  • Bonds
  • Unit trusts
  • Endowment policy

Because of their inability to grow in value at the same rate as your loan, endowment policies have become less popular. If you can prove that your projected growth is acceptable, lenders may still allow this type of investment. Because all assets are subjected to fluctuations, lenders will need proof that they can repay the loan balance.

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Cash repayments or lump sums for pension

To repay the loan, you could use your savings, inheritance or the tax-free lump sum from your pension pot. You may also be able to make lump sum payments on the capital over the term of your mortgage.

Retirement interest-only mortgages

The loan is not subject to a fixed term and will be paid from the proceeds of the sale of the property. It may be possible to remortgage to this product as long as you can still meet the monthly interest payment criteria. Before making any significant financial decisions, it is crucial to seek qualified advice from an expert in the field of later-life lending.

Equity release

An equity release product such as a lifetime mortgage may be suitable if you’re 55 or older. Before you take out any equity release, getting the right mortgage advice is essential.


There are many remortgage options that you can consider. However, you will need to consider your age and the maximum term lenders will accept, mainly if you are near the end of a 25-year term. Your circumstances may allow your current lender to extend your mortgage.

Remortgaging to a lender with flexible term and age criteria or to a repayment mortgage is possible. Skipton Building Society offers part- and part-mortgages that combine an interest-only and repayment mortgage. You can reduce the capital required to repay the loan and make repayments more manageable.

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How to obtain a fixed rate interest-only mortgage

Although it is possible to apply directly for interest-only mortgages, brokers with specialized knowledge in this area are likely to offer the best deals. Some lenders, including more notable names like Santander, won’t offer interest-only products directly.

Our whole-of-market broker network has access to all interest-only lenders in the market. This means that no matter if you are looking for a residential or investment home, they can match you with the right lender.

These brokers often have access to interest rates that aren’t available to the general public. Getting the best rate possible when choosing this repayment option is essential because the interest you owe over your mortgage will not decrease.

Get in touch to arrange for an interest-only specialist to contact you for a complimentary, no-obligation chat

Which lenders offer these mortgages?

Many lenders have pulled their interest-only products off the market after the 2008 financial crisis. However, more lenders are offering this type of deal. There are now over 35 of them.

Most lenders have much stricter requirements for interest-only loans. Many require a minimum income as well as equity/deposit requirements. HSBC and Barclays offer this product with no minimum equity requirements. *

What rates should you expect?

In general, interest-only mortgages can be obtained at fixed and variable rates. This is similar to repayment mortgages. Rates cost can vary depending on whether fixed or variable, how long the loan is, deposit size and other factors. However, rates for an interest-only £250,000 mortgage that lasts 25 years are typically between 2.5% to 3%.

Match with an interest-only mortgage specialist

No matter your reason for choosing interest-only mortgages, our brokers are experts in the field and can help you find the best deal for you. They can help you secure the best rates and prepare your application to facilitate a smooth transaction.

We will match you with the best broker for you. Contact us today, and we’ll help you get started.

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Fixed-rate interest-only mortgage FAQs

What insurance should I get with an interest-only loan?

Although there are no specific insurance policies to protect interest-only mortgage borrowers, most homeowners will consider insurance policies that can help with their mortgage payments in case of disability, sickness, or death of one of their spouses.

There are many types of policies you should consider.

  • Life insurance
  • Coverage for critical illness
  • Mortgage Protection Insurance

These policies come in many forms, with some combining elements from all the above.

Contact us today for mortgage advice with a specialist broker.

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