Interest-Only Mortgage Guide: How It Works & Who Qualifies

How Interest-Only Works

With an interest-only mortgage, your monthly payments cover just the interest on the loan — you don't repay any of the capital. At the end of the term, you must repay the full original loan amount. On a £200,000 mortgage at 5%, you'd pay £833/month (interest only) versus £1,169/month (repayment). That's £336 less per month, but you still owe £200,000 at the end.

Who Qualifies?

Interest-only residential mortgages are much harder to get than they used to be. Most lenders require: a minimum income of £75,000-100,000, a maximum LTV of 50-75%, a credible repayment strategy (investments, property sale, pension), and sometimes a minimum loan size of £300,000+.

Buy-to-let mortgages are commonly interest-only, as landlords plan to repay by selling the property.

Repayment Strategies

You must have a plan to repay the capital. Options include: selling the property, using savings or investments (ISA, stocks), using pension lump sum, downsizing, or switching to a repayment mortgage before the term ends.

Risks

The biggest risk is reaching the end of your term without enough to repay. If your investments underperform or property prices fall, you could face a shortfall. Lenders can repossess if you cannot repay.

Is Interest-Only Right for You?

Interest-only suits high earners with strong investment discipline, BTL investors, and those with a clear exit strategy. It's not suitable if you have no realistic plan to repay the capital.