Interest-Only Mortgages: Who Still Offers Them?

Interest-only mortgages had their heyday in the 2000s when nearly half of all UK mortgages were interest-only. After the financial crisis and the Mortgage Market Review, they became much harder to get. But they haven't disappeared. In 2026, interest-only residential mortgages are still available — you just need to know where to look and what lenders require.

How Interest-Only Mortgages Work

With an interest-only mortgage, your monthly payments cover only the interest on the loan. You don't pay back any of the capital (the original amount borrowed). At the end of the mortgage term, you owe the full amount you originally borrowed.

Example: £200,000 mortgage at 4.5% over 25 years

The monthly saving is £361 — substantial. But at the end of 25 years, you still owe £200,000 and need a plan to repay it.

Why Interest-Only Became Restricted

In the years before 2008, lenders were relaxed about repayment vehicles. Many borrowers took interest-only mortgages with vague plans to repay the capital through:

• Endowment policies (which famously underperformed)
• "The property will go up in value" (property prices fell)
• "Something will come up" (nothing came up)

When the Mortgage Market Review (MMR) rules came in 2014, the FCA required lenders to verify that borrowers had a credible plan to repay the capital. This dramatically reduced the availability of interest-only residential mortgages.

Who Still Offers Interest-Only Residential Mortgages?

Mainstream Lenders (With Strict Criteria)

Several mainstream lenders still offer interest-only for residential purchases, but with significant conditions:

• Barclays — interest-only available with acceptable repayment vehicle
• HSBC — available for higher-value mortgages
• Nationwide — limited interest-only options
• NatWest — available with strict criteria

Typical mainstream requirements:

• Minimum loan amount: often £100,000-£300,000+
• Maximum LTV: 50-75% (you need substantial equity)
• Minimum income: some lenders set floors of £75,000-£100,000+
• Verified repayment vehicle: savings, investments, property sale, pension

Building Societies

Some building societies offer interest-only with more flexible criteria:

• Leeds Building Society
• Yorkshire Building Society
• Bath Building Society
• Principality Building Society

Specialist Lenders

• Kensington — interest-only options available
• Aldermore — case-by-case assessment
• Together — flexible on interest-only

Acceptable Repayment Vehicles

Lenders need to see a realistic plan for repaying the capital at the end of the term. Commonly accepted vehicles:

Sale of the Property

If you plan to sell the mortgaged property and downsize, the sale proceeds can repay the capital. Lenders may accept this if:

• You have substantial equity (typically 50%+ at the end of the term)
• Property values would need to fall significantly before you couldn't repay
• You're not relying on property price growth to cover the shortfall

Investments and Savings

ISAs, investment portfolios, shares, or other savings earmarked for repayment. Lenders want to see:

• The investments actually exist (not theoretical future savings)
• The projected value at maturity is sufficient
• The investment strategy is reasonable (not highly speculative)

Pension Lump Sum

Your pension tax-free lump sum (typically 25% of the pot) can be used. Lenders will want evidence of:

• The current pension value
• The projected value at retirement
• That the 25% lump sum will cover the mortgage balance

Sale of Another Property

If you own additional property, the planned sale can serve as a repayment vehicle. Evidence of ownership and current value is needed.

Endowment Policies

Still accepted if you have one, though endowments are no longer sold. If your existing endowment has a projected maturity value that covers the mortgage, it remains a valid vehicle.

Interest-Only for Buy-to-Let

This is where interest-only remains widely available. Most buy-to-let mortgages are interest-only, because:

• The rental income covers the interest payments
• The property itself is the investment — the exit strategy is to sell the property
• Landlords prefer lower monthly costs to maximise rental yield
• The tax treatment (since Section 24 mortgage interest changes) makes interest-only more complex but still common

Almost all BTL lenders — mainstream and specialist — offer interest-only terms.

Retirement Interest-Only (RIO) Mortgages

For older borrowers, Retirement Interest-Only mortgages are a growing product category:

• You pay only the interest each month
• The capital is repaid when the property is sold — typically when you die, move into care, or sell voluntarily
• No fixed term — it continues until a life event triggers sale
• Available from lenders including Leeds Building Society, Bath Building Society, Nationwide, and Hodge

RIO mortgages are regulated differently from standard interest-only and are specifically designed for borrowers in or approaching retirement.

The Risks of Interest-Only

You Don't Build Equity Through Payments

On a repayment mortgage, every payment reduces what you owe. On interest-only, your debt stays the same for the entire term. The only equity you build comes from property price increases — which aren't guaranteed.

The Day of Reckoning

When the term ends, you need to repay the full amount. If your repayment vehicle hasn't performed (investments declined, property prices fell, pension projections missed), you face a serious problem. Options at that point may include selling, downsizing, switching to a repayment mortgage for a remaining term, or extending the mortgage.

Lender Action at Term End

Lenders are increasingly proactive about contacting borrowers as their interest-only term approaches. If you can't repay, they'll work with you — but the options become limited. Some borrowers effectively become mortgage prisoners at this point.

Is Interest-Only Right for You?

Interest-only makes sense if:

• You have a genuine, funded repayment vehicle
• You need lower monthly payments and can use the savings productively
• You're a high-net-worth borrower with assets exceeding your mortgage
• You're a landlord where the property IS the investment
• You're an older borrower where a RIO mortgage suits your circumstances

It may not be right if:

• Your only repayment plan is "property will go up"
• You'd use the savings for lifestyle spending rather than investment
• You don't have a substantial equity buffer
• You'd worry about owing the same amount in 25 years

Worked Example: Interest-Only vs Repayment Decision

Claire earns £65,000 and wants to borrow £250,000 on a property worth £420,000 (60% LTV). She has £150,000 in investments and is debating interest-only vs repayment.

Repayment mortgage at 4.5% over 25 years:

• Monthly payment: £1,390
• Total interest paid: £167,000
• Balance at end: £0

Interest-only mortgage at 4.5% over 25 years:

• Monthly payment: £938
• Total interest paid: £281,250
• Balance at end: £250,000
• Monthly saving vs repayment: £452

Claire's plan: Invest the £452 monthly saving into an ISA, targeting 6% average annual returns. After 25 years, her investment pot would be approximately £290,000 — more than enough to repay the £250,000 mortgage with £40,000 left over.

The risk: Investment returns aren't guaranteed. If her investments only average 3%, she'd have approximately £175,000 after 25 years — a £75,000 shortfall. She'd need to sell the property, find additional funds, or extend the mortgage.

The verdict: Interest-only works for Claire because:

• She has a large equity buffer (60% LTV, so even a significant property price drop wouldn't put her in negative equity)
• She has an existing investment portfolio demonstrating financial competence
• She has a specific, funded repayment plan
• She can afford the repayment mortgage if her investment strategy fails — she'd simply switch

Interest-only would NOT work if Claire had no investments, was at high LTV, or had no concrete plan to repay.

Part-and-Part Mortgages: The Middle Ground

If full interest-only isn't available or feels too risky, a part-and-part mortgage offers a compromise:

How it works:

• Part of your loan is on a repayment basis (you're paying it down)
• Part is on interest-only (you're only covering the interest)

Example: £200,000 mortgage, split 50/50

• £100,000 on repayment at 4.5% over 25 years: £556/month
• £100,000 on interest-only at 4.5%: £375/month
• Total: £931/month (vs £1,111 for full repayment, vs £750 for full interest-only)

At the end of 25 years, the repayment portion is cleared and you owe £100,000. This is easier to manage than owing the full £200,000.

Lenders offering part-and-part: Most mainstream lenders will consider part-and-part arrangements, including Halifax, Nationwide, NatWest, and Barclays. The split can usually be set at whatever ratio works for your affordability and repayment plan.

Interest-Only with Adverse Credit

If you have adverse credit and want interest-only, your options are limited but not zero:

• Together: One of the more flexible specialist lenders for interest-only with adverse credit. They focus on the property's equity and the exit strategy rather than just credit score.
• Kensington: May consider interest-only for applicants with moderate adverse credit if the LTV is low (typically under 60%).
• Aldermore: Case-by-case assessment, particularly for high-net-worth borrowers with credit blips.

Expect to need:

• A maximum LTV of 50-65% (much lower than standard interest-only)
• A very strong repayment vehicle
• Higher rates (potentially 6-9% depending on credit severity)
• Larger minimum loan amounts

Common Mistakes with Interest-Only Mortgages

Treating It as "Cheaper" Without a Plan

Interest-only isn't cheaper — you're deferring the cost. The monthly savings only benefit you if they're invested or used productively. If you spend the difference, you'll owe the full balance at the end with nothing to show for the "savings."

Not Reviewing Your Repayment Vehicle Regularly

If your repayment plan relies on investments, check them annually. If they're underperforming, you need to act — increase contributions, switch strategy, or consider converting some of the mortgage to repayment.

Ignoring the Tax Implications

If your repayment vehicle involves selling investments, capital gains tax may apply. Factor this into your calculations — you may need more in your investment pot than the mortgage balance to cover the tax on gains.

Assuming You Can Switch to Repayment Easily

Converting from interest-only to repayment increases your monthly payments significantly. If affordability is tight, this may not be possible. Check what your monthly payments would be on a repayment basis before committing to interest-only.

Letting the Term Run Out Without Acting

As your interest-only term approaches its end, contact your lender well in advance (at least 12-18 months before). Options at term end include extending the term, switching to repayment for a final period, downsizing, or using your repayment vehicle. The worst thing you can do is ignore it.

Questions to Ask Your Broker About Interest-Only

1. "What repayment vehicles does this specific lender accept?" — Requirements vary. Some only accept investments above a certain value; others want evidence of a property to sell.
2. "What's the maximum LTV for interest-only with my credit profile?" — The lower the LTV required, the more equity you need upfront.
3. "Can I switch from interest-only to repayment (or vice versa) during the term?" — Flexibility to change is valuable.
4. "Would a part-and-part structure work better for me?" — The broker should model this option alongside full interest-only and full repayment.
5. "What happens at the end of the term if I can't repay?" — Understand the lender's process for dealing with borrowers approaching term end.
6. "Is a Retirement Interest-Only (RIO) mortgage more appropriate for my age?" — If you're over 55, RIO may be a better fit.

Plan the Exit Before the Entrance

The single most important thing with any interest-only mortgage is knowing how you'll repay it. The best time to plan your exit strategy is before you take the mortgage — not 20 years later when options have narrowed. Talk to a financial adviser about repayment vehicles, and review your plan regularly.

This is educational content, not financial advice. Your situation is unique — speak to a qualified mortgage broker before making any decisions.