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Interest-only mortgage lenders

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 6, 2023

Interest-only mortgage lenders

These interest-only mortgages are less common than they were in the past. This product is being reintroduced by more lenders, which is good for many buyers.

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

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What is an interest-only loan?

An interest-only mortgage, as you might guess, is a home loan that only repays the interest each month. The borrowed total will remain due at the end of the 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 interest 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 mortgage term is 25 years. However, most lenders will require you to agree to your repayment strategy plan as part of your mortgage application process.

Each lender will have its list of acceptable repayment options. 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 with monthly payments. The lending criteria for interest-only mortgages tend to be more strict than for 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 stricter criteria.

Significant equity and deposit requirements and high-income thresholds for residential purchases often exist. 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.

Contact today to discuss interest-only mortgage rates and the best option to suit you. All of our brokers are regulated by the financial conduct authority.

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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.

How much could you borrow using interest-only mortgage lenders?

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 income 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 to be lower.

The mortgage affordability calculator can help you determine how much loan you might qualify for. After you have tried it, why not speak to one of our brokers who specialise in this type of home loan?

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Criteria for eligibility for interest only mortgages

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 in the case of buy-to-let. But, credit problems could still prove to be a problem. There are brokers and lenders for bad credit.
  • Age – Lenders have minimum and maximum age requirements. However, some interest-only mortgages can be tailored for older borrowers, such as the RIO ( Retirement Interest-only). 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 lenders.
  • 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 properties that are not standard in construction. A specialist lender is required if you are looking to buy a timber-frame or listed property.

Repayment plan – 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.

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 vehicles. One lender can approve you even though another lender declined you due to your vehicle choice. Some lenders will accept multiple repayment options to go with a single purchase. However, each option might 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.


Many investment options can be considered acceptable repayment vehicles.

  • ISA
  • Stocks and 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.

Cash repayments or lump sum pension

To repay the loan, you could use your personal 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 vital 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 years old or older. Before you take out any equity release, it is essential to get the right advice.


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 repayments by reducing some of the capital and leaving a lower balance at the end.

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How to obtain an 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 prominent 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 important 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 interest only 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, and your deposit size. However, rates for an interest-only £250,000 mortgage that has been in force for 25 years are typically between 2.5% to 3%.

Speak to 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 your circumstances. 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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