Do all lenders offer interest-only mortgages?
Tags: Interest-only mortgages, Remortgages, Residential mortgages
Quick Summary
Not all mortgage lenders offer interest-only mortgages, but many do, subject to stricter checks on affordability, income, deposits, and repayment strategies. Interest-only is more common for buy-to-let, high earners, large mortgage borrowers and applicants with credible repayment plans such as investments, pensions, savings or property sales. Monthly payments are lower because borrowers only pay the interest, but the original mortgage balance must still be repaid at the end. For example, at 4.5%, a £500,000 interest-only mortgage costs about £1,875 a month, £750,000 costs about £2,813 and £1 million costs about £3,750. Part-and-part mortgages can provide a sensible compromise, reducing monthly costs while gradually repaying some capital. Trinity Financial can compare lenders and criteria. Most high street lenders do not offer specific interest-only mortgage rates; their fixed rates and tracker products are available on a capital repayment or interest-only basis.
Do all mortgage lenders offer interest-only mortgages?
Not all lenders offer residential interest-only mortgages, but many do. Typically, the banks and building societies offer interest-only loans to borrowers who meet stricter criteria. Interest-only is much more common in the buy-to-let mortgage market, where landlords often use it to improve rental cash flow.
For residential mortgages, lenders usually want a higher income, a larger deposit, a credible repayment strategy, and a credible plan to repay the mortgage. This may be in the form of a pension, the sale of the property, lump sum overpayments, UK savings or investments.
Interest-only qualification rules are tougher than they used to be, which means they currently account for just 10% of all mortgages.
How many lenders offer interest-only mortgages?
There is not one reliable public figure showing the exact number of UK lenders offering interest-only at any moment because criteria and products change frequently. In practice, dozens of banks, building societies, private banks and specialist lenders will consider some form of interest-only or part-and-part mortgage, but the rules vary significantly.
Mainstream lenders such as NatWest, HSBC, Halifax, Coventry Building Society and Leeds Building Society publish interest-only criteria, while private banks like Coutts and specialist lenders may offer more flexible options for high-net-worth borrowers, complex income, large loans or investment-backed repayment strategies. NatWest, for example, states that residential interest-only borrowing can be available up to 80% loan-to-value for some customers, while its intermediary criteria show part-and-part options can go up to 85% loan-to-value in some scenarios.
Which lenders have the best interest-only mortgages?
There is no single “best” interest-only mortgage lender. The best lender depends on:
| Borrower type | Lender type often worth considering |
|---|---|
| High-income employed applicants | Mainstream banks such as NatWest, HSBC, Halifax or Barclays |
| Large loan borrowers | Private banks and wealth-led lenders |
| Self-employed applicants | Specialist lenders or private banks, depending on the income structure |
| Borrowers with strong investments | Lenders accepting investments, pensions or savings as repayment strategies |
| Downsizers | Lenders accepting sale of the mortgaged property, subject to equity rules |
| Landlords | Buy-to-let lenders, where interest-only is more common |
For many borrowers, the best lender is not simply the one with the lowest rate. It is the lender most likely to accept the repayment vehicle, loan-to-value, income type and property.
General acceptance criteria for an interest-only mortgage
Most residential interest-only lenders assess the following:
| Criteria | Typical lender requirement |
|---|---|
| Deposit / LTV | Often 25% to 40% deposit, although some lenders go higher for the right applicant. |
| Income | Many lenders require a minimum income, commonly around £75,000 to £100,000 for residential interest-only. However, some do not have minimum income requirements, provided the borrower has a large deposit or lots of equity in their home. |
| Repayment strategy | Sale of property, sale of another property, investments, pension lump sum, savings, endowment or other credible assets. |
| Affordability | Lenders still test the mortgage on affordability, even though the monthly payments are lower. |
| Age and term | Maximum age and mortgage term rules apply. |
| Equity buffer | Some lenders require a minimum amount of equity left in the property. |
| Evidence | Bank statements, investment statements, pension projections, property details or other proof may be required. |
HSBC says lenders may have minimum income requirements, typically £75,000, and borrowers need a repayment vehicle such as ISAs, savings, bonds or shares. NatWest says applicants need income of £75,000 individually or £100,000 jointly, a maximum 80% LTV, and an approved repayment plan.
Halifax says borrowers using property sale as a repayment method should allow enough time to sell before the mortgage term ends. The maximum loan amount available on interest only is 75% loan to value (or for sale of mortgaged property (SOMP) main residence 50%, 60% or 75% depending on the minimum equity requirement). On part interest only/part capital and interest repayment customers can borrow up to 85% LTV with the balance on capital and interest repayment.
Why would someone want an interest-only mortgage?
Borrowers may choose interest-only because it can:
- Reduce monthly mortgage payments
Payments cover only the interest, not the capital. - Improve cash flow
This can suit landlords, high earners with variable income, business owners or borrowers expecting future bonuses, investment proceeds or property sale proceeds. - Help with large mortgage loans
Some high-income borrowers use interest-only to manage payments on larger mortgages. - Provide flexibility
Some borrowers prefer to overpay, invest separately or use a future repayment event. - Support tax or financial planning
Landlords, business owners and high-net-worth borrowers may use interest-only as part of wider financial planning.
Are interest-only mortgages risky?
Yes, they can be. The biggest risk is that the mortgage balance does not reduce during the term. If you borrow £500,000 on interest-only, you still owe £500,000 at the end unless you make separate repayments.
The main risks are:
| Risk | Why it matters |
|---|---|
| No capital is repaid | The full loan remains outstanding |
| Repayment plan may fail | Investments, pensions or property values may not perform as expected |
| Property sale risk | The home may not sell quickly or for enough money |
| Higher long-term cost | You may pay interest for years without reducing the debt |
| Remortgage risk | Future lenders may not offer the same terms |
| Retirement risk | Borrowers may reach later life still owing a large mortgage |
The HomeOwners Alliance explains that interest-only payments are lower, but the original loan still has to be repaid at the end of the mortgage term.
Is part interest-only and part capital repayment more sensible?
For many borrowers, part-and-part can be a more balanced option. This means part of the mortgage is on interest-only and part is on capital repayment.
For example:
| Mortgage structure | Example on £500,000 mortgage |
|---|---|
| Full repayment | £500,000 gradually repaid over the term |
| Full interest-only | £500,000 still owed at the end |
| Part-and-part | £250,000 repayment and £250,000 interest-only |
Part-and-part can be sensible because it reduces monthly payments compared with full repayment, but still reduces some of the mortgage balance over time. NatWest’s intermediary criteria refer to part-and-part lending up to 85% LTV in some scenarios, with part of the mortgage on capital and interest.
Comment from Aaron Strutt, Trinity Financial:
“Interest-only mortgages are much harder to qualify for than they used to be, but they still have an important place in the market. They are particularly useful for higher earners, landlords, borrowers with large loans and clients with credible repayment strategies.
“The key issue is not just whether the lender offers interest-only, but whether the borrower’s repayment plan is acceptable. Some lenders are comfortable with sale of the property, while others prefer investments, pensions, savings or sale of another property.
“Part-and-part mortgages are often a sensible compromise. They keep payments lower than a full repayment mortgage but still reduce some of the debt. Borrowers need to be realistic about how they will repay the interest-only element because the capital does not disappear.”
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The information contained within was correct at the time of publication but is subject to change. It is for general information purposes and is not advice.
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No. Some lenders do not offer residential interest-only, and others only offer it to borrowers who meet strict income, deposit and repayment strategy rules.
The monthly payments are usually lower because you only pay the interest. However, they are not necessarily cheaper overall because the loan balance is not reducing. If you do not make overpayments, the outstanding balance will not reduce with an interest-only mortgage.
It is possible with some lenders, but it is much harder than getting a repayment mortgage. Lenders usually want a strong deposit, good income and a clear repayment plan. A part interest-only and part capital-repayment is often more suitable and easier to qualify for.
Many lenders want at least 25% deposit, and some require more. Higher loan-to-value interest-only mortgages may be available, but the borrower usually needs to meet stricter criteria.
A part-and-part mortgage is often safer than full interest-only because some of the debt is being repaid during the term. The safest option depends on the borrower’s income, assets and repayment strategy. Many borrowers get to the end of their mortgage term with a large outstanding balance which they cannot repay. This means they either need to remortgage, sell the property and downsize or borrow money from friends and family. Interest-only mortgages are good for cash flow, but borrowers need a credible plan to repay the debt.
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