Are interest-only mortgages still available in the UK?

Yes, but they're much harder to get than before 2014. You need to show a credible repayment vehicle (ISA, pension lump sum, second property sale or downsizing), and lenders typically require high income (£75k+), large deposits (25-35%) and maximum LTV of 50-75%.

How much cheaper is interest-only than repayment?

On a £200,000 mortgage at 5% over 25 years, interest-only saves roughly £335-£400 per month compared with full repayment. But you still owe the full £200,000 at the end of the term, so the saving has to be banked or invested to actually pay off the capital.

What counts as a repayment vehicle?

Lenders accept: Stocks & Shares ISAs with regular contributions, pension lump sums (25% tax-free element), sale of a second property or BTL, sale of the mortgaged property itself (mainly on retirement with significant equity), and endowment policies (mostly legacy now).

Can I switch from interest-only to repayment?

Yes, most lenders allow you to switch at any time, and increasingly encourage it. You can do it fully (all the balance on repayment) or as part-and-part. The monthly cost goes up but you start clearing the capital.

Is buy-to-let always interest-only?

Most buy-to-let mortgages are interest-only by default. Repayment BTL exists but is less common, because landlords typically prefer the cash-flow benefit of paying only interest, especially given the property itself is usually the eventual exit.

Can I get an interest-only mortgage as a first-time buyer?

Possible but rare. Most lenders that offer residential interest-only want significant savings/investments already in place as a repayment vehicle, which most first-time buyers don't have yet. Most first-time buyers go straight onto repayment.

Interest-Only Mortgages Explained

Q: What is part-and-part?

Part-and-part splits the loan: some of the balance is on repayment, some on interest-only. So a £400,000 mortgage might be £200,000 repayment and £200,000 interest-only. The monthly payment is lower than full repayment but you still chip away at part of the capital.

An interest-only mortgage looks tempting on paper. Pay only the interest each month, keep the capital balance untouched, free up cash for other things. For most UK buyers since the 2014 Mortgage Market Review, it's also been quietly off-limits. Lenders tightened the criteria so severely that interest-only became a niche product, for high-income earners, buy-to-let landlords, and a few specific cases. Here's how interest-only actually works, who can get one in 2026, and when it's the right tool for the job.

Interest-only vs repayment: the headline difference

On a repayment mortgage (sometimes called 'capital and interest'), each monthly payment covers two things: the interest the lender charges, AND a chunk of the original capital you borrowed. By the end of the mortgage term, usually 25 to 35 years, the balance is zero. You own the property outright.

On an interest-only mortgage, each monthly payment covers only the interest. The capital balance stays the same throughout the term. At the end of the 25 to 35 years, you still owe the full amount you originally borrowed, and the lender expects you to repay it in full, in one lump.

Why the monthly payment is lower

A £200,000 mortgage at 5% over 25 years costs roughly:

The £406/month interest-only saving is real cash. The question is what you do with it, and how you intend to repay the £200,000 capital at the end.

Repayment: ~£1,169/month, full payment includes both interest and chunks of capital.
Interest-only: ~£833/month, interest only, capital balance stays at £200,000 forever.

The 'repayment vehicle', the bit that filters most people out

Since the 2014 MMR rules, no UK lender will offer an interest-only residential mortgage without seeing a credible repayment vehicle. This is a plan, in writing, for how you'll repay the capital at the end of the term. Lenders accept a small handful of vehicles:

Stocks & Shares ISAs or other investment plans, with a track record of contributions.
Pension lump sums (the 25% tax-free element), if the mortgage term ends after your retirement age.
Sale of a second property (e.g. a BTL or holiday let).
Sale of the mortgaged property itself, but typically only on retirement, and lenders want to see significant equity already in place.
Endowment policies (rare now; mostly legacy).

Lender criteria for residential interest-only

Beyond the repayment vehicle, residential interest-only generally requires:

High minimum income, often £75,000 single or £100,000 joint.
Significant deposit, typically 25 to 35% minimum, sometimes higher.
Maximum 50 to 75% LTV, depending on lender.
Track record of saving/investing, they want to see the repayment vehicle is real.
Property value, often £250,000 to £500,000 minimum.

Part-and-part: the middle ground

Many lenders that offer interest-only also offer part-and-part: some of the balance is on repayment, some is on interest-only. So a £400,000 mortgage might be £200,000 repayment and £200,000 interest-only.

This brings the monthly payment down (cheaper than full repayment) but ensures part of the balance is being chipped away. At the end of the term, you only need to repay the interest-only portion. It's the sensible compromise for borrowers who want some payment flexibility but don't have a perfect repayment vehicle.

Buy-to-Let interest-only is different

Buy-to-let mortgages are almost always interest-only by default, and the rules are looser, because BTL isn't covered by the same consumer-protection rules as residential lending.

BTL interest-only makes sense for landlords because: rental income covers the interest, the property itself is the eventual repayment vehicle (you sell it at the end), and keeping monthly costs low maximises cash flow. Most landlords never repay the capital, they remortgage every 2 to 5 years to a new interest-only product and keep going.

Retirement Interest-Only (RIO)

A specific variant called Retirement Interest-Only (RIO) is designed for older borrowers. The loan runs until death, sale of the property, or move into long-term care, there's no fixed end date pushing repayment. Monthly interest payments come out of pension income.

RIO is closer to a standard mortgage than to equity release, you keep ownership, you pay interest monthly, and you don't accumulate unpaid interest. It's a useful option for retirees who want to remortgage or unlock some equity without giving up control.

The 'interest-only timebomb', what to watch out for

Around two million UK homeowners took out interest-only mortgages in the boom years before MMR. Many planned to use an endowment policy or 'sort it later' to repay the capital. Endowments under-performed, plans were never made, and now lenders are facing borrowers in their 60s and 70s with substantial interest-only balances and no way to repay them.

If you already have an interest-only mortgage and no clear repayment plan, the time to act is now. Options include: switching to repayment (or part-and-part), overpaying aggressively while you still have income, downsizing voluntarily before you're forced to, or remortgaging onto an RIO or Lifetime Mortgage. The earlier you act, the more options you have.

Interest-only isn't dead, it's just narrower. For high earners with genuine investment plans, BTL landlords, and retirees using RIO, it's a perfectly sensible tool. For everyone else, full repayment (or part-and-part) is almost always the right call. If you're weighing up which structure fits your situation, Debbie at DS Financial can match you to a lender whose rules fit, and stress-test whether your repayment plan stacks up.

General information, not financial advice. Your home may be repossessed if you do not keep up repayments on your mortgage.

Sources: FCA, Interest-only mortgages, MoneyHelper, Interest-only mortgages, UK Finance, Mortgage statistics.

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