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Interest-only mortgages: pros and cons, and when they make sense
With an interest-only mortgage your monthly payment covers only the interest, so the amount you borrowed stays the same for the whole term and has to be repaid in one go at the end. The main advantage is a lower monthly payment. The main disadvantage is that you need a credible way to repay the loan, and you pay more interest overall. Here's how the pros and cons stack up, and who it can suit.
Updated on 17 September 2026 with the latest lender criteria and UK Finance data on interest-only mortgages.
Repayment
£1,228
A month on £200,000 over 25 years at 5.5%. Nothing left to pay at the end
Interest-only
£917
A month on the same loan and rate. The full £200,000 is still owed after 25 years
Illustration only, assuming the rate stays at 5.5% for the whole term. Your rate and payments will differ.
What is an interest-only mortgage?
On a repayment mortgage, each payment covers the interest and some of the loan, so the debt is cleared by the end of the term. On an interest-only mortgage the balance doesn't fall unless you overpay.
At the end you repay the full amount, usually from savings, investments, a pension lump sum or selling a property. Lenders call this your repayment strategy, and won't lend without one.
Repayment vs interest-only: what the numbers look like
On £200,000 over 25 years at an illustrative 5.5%, interest-only saves £311 a month. But at the end the repayment borrower owns the home outright, while the interest-only borrower still owes every penny.
Mortgage balance over 25 years
£200,000 borrowed at 5.5%, illustration only
| Over 25 years at 5.5% | Repayment | Interest-only |
|---|---|---|
| Monthly payment | £1,228 | £917 |
| Total interest paid | £168,452 | £275,000 |
| Still owed at the end | £0 | £200,000 |
Interest-only mortgage pros and cons
| Advantages | Disadvantages |
|---|---|
| Lower monthly payments, which frees up cash flow | The loan isn't reduced, so you need a separate way to repay it |
| Flexibility to pay down the loan with bonuses or lump sums, within overpayment limits | More interest overall, because you owe the full amount for longer |
| Money not spent on capital can go into savings, investments or a pension | A shortfall if investments underperform or the plan changes |
| Suits buy-to-let, where rent often covers the interest | You build equity only if prices rise, so falls hit you harder |
| Can make a home affordable in later life without selling (retirement interest-only) | Stricter criteria: bigger deposits, higher incomes and fewer lenders |
If you do choose interest-only, check the overpayment allowance. Many deals let you overpay up to 10% of the balance a year without a charge. Our guide to mortgage overpayments explains how that works.
Why choose an interest-only mortgage? Who it suits
For most homebuyers, repayment is the safer choice. Interest-only makes sense with a realistic plan for the capital and a reason to keep payments low.
Older borrowers with plenty of equity
Often planning to downsize, or using a retirement interest-only mortgage
If you plan to sell and move somewhere smaller, interest-only keeps payments low until then. In retirement, a RIO mortgage lets you pay just the interest until the home is eventually sold.
High earners with bonuses or investments
Irregular income, or assets that will clear the loan
People paid partly in bonuses may prefer a low fixed payment and clear the balance in lump sums. Others hold investments or pensions large enough to repay it.
Buy-to-let landlords
The most common use of interest-only today
Most buy-to-let mortgages are interest-only. The rent covers the interest and the loan is usually repaid by selling or refinancing.
Buyers who want a middle route
Part-and-part (part repayment, part interest-only)
Splitting the loan lowers the payment while still clearing some of the debt. On our example, half and half costs about £1,072 a month and leaves £100,000 to repay at the end.
Who should think twice
Using interest-only just to afford a bigger home
If your plan depends on house prices rising or an inheritance, it's likely to be unsuitable, and lenders won't accept it.
Repayment strategies lenders accept
Criteria vary a lot, and each lender decides how much of an asset it will count.
| Repayment strategy | What lenders often want |
|---|---|
| Sale of your home (downsizing) | Plenty of equity, often £200,000 or more at high street lenders (higher in London and the South East), and a lower loan to value |
| Sale of other property | Evidence of ownership and equity, with only part of that equity counted |
| Savings and investments | Recent statements, with some lenders counting only a proportion to allow for market falls |
| Pensions | Projected tax-free lump sum, often heavily discounted, and not usually on its own |
| Regular overpayments | Enough to clear the loan by the end of the term, from affordable income |
Many high street lenders also set a minimum income. One major lender currently asks for a basic income of £75,000 for a sole applicant. Specialist lenders and building societies can be more flexible, especially for older borrowers.
FCA rules: a credible repayment strategy
Since the Mortgage Market Review in 2014, the Financial Conduct Authority (FCA) has required lenders to check your plan properly.
- A credible planThe lender must have evidence of a clearly understood strategy that could repay the loan.
- No speculationPlans that rely on house prices rising or an uncertain inheritance aren't allowed.
- AffordabilityThe cost of your plan, such as regular savings, is counted as spending when checking what you can afford.
- A review during the termLenders must check at least once that the plan is still on track, in time to fix it.
Negative equity and the end-of-term shortfall
Because the balance doesn't fall, interest-only borrowers are more exposed to negative equity, where you owe more than the home is worth. Take a £300,000 home bought with a £200,000 loan. If it is worth 10% less after 10 years, the interest-only borrower has £70,000 of equity left. A repayment borrower would owe about £150,000, leaving roughly £120,000.
The bigger risk is reaching the end of the term without the money. In 2023 the FCA found that 36% of interest-only borrowers expected a shortfall, but its modelling suggested the figure could be closer to 46%, with maturities peaking in 2031 and 2032.
Numbers are falling. UK Finance says 445,000 pure interest-only and 156,000 part-and-part homeowner mortgages were outstanding at the end of 2025, and over two-thirds of these borrowers owe less than half their home's value.
Worried about repaying?
- Act early
- The more years left, the more options. The FCA says talking to your lender won't affect your credit rating.
- Check your plan
- Get up-to-date values for your investments, pensions and property.
- Know your options
- Overpaying, switching some or all of the loan to repayment, extending the term, downsizing or later-life lending.
Switching from interest-only to repayment
You can usually move some or all of your mortgage to repayment, with your lender or by remortgaging, subject to an affordability check. Leaving a deal early may mean early repayment charges.
Expect a big jump. Switching our £200,000 example to repayment with 15 years left at 5.5% takes the payment from £917 to about £1,634. Switching only part, or extending the term if your age allows, softens that. See our remortgage and rate switch pages.
Retirement interest-only (RIO) vs equity release
RIO mortgages came under FCA rules in March 2018. You pay the interest monthly, and the loan is repaid when the last borrower dies or moves into long-term care, usually from the sale of the home.
| RIO mortgage | Lifetime mortgage (equity release) | |
|---|---|---|
| Monthly payments | Interest must be paid every month | Usually optional |
| Balance | Stays the same | Grows as interest rolls up, unless you pay it |
| Affordability check | Yes, based on income in retirement | Based mainly on age and property value |
| Repaid | On death or moving into long-term care | On death or moving into long-term care |
A RIO can leave more of your home's value for your family, but you must keep up payments even if a partner dies and income falls. Equity release needs specialist advice.
Interest-only buy-to-let mortgages
Interest-only is the norm for buy-to-let. Lenders size the loan mainly on the rent, which must cover the interest with a margin at a stressed rate. Our guide to HMO buy-to-let mortgages covers the stress test in more detail.
Most buy-to-let mortgages are not regulated by the Financial Conduct Authority. Whether yours is regulated will depend on your circumstances and the purpose of the loan.
How we can help
Lenders' rules on equity, income, age and repayment plans differ widely, and with mortgage rates possibly rising again, it pays to compare. Quick Mortgages is whole-of-market, including specialist and later-life lenders, with no broker fees. We're based in Birmingham and help borrowers across the UK with purchases, buy-to-let and specialist lending.
Interest-only mortgage FAQs
What is the point of an interest-only mortgage?
Lower monthly payments. It suits people with a solid plan to repay the loan another way, such as selling a property, investments or a pension lump sum, or landlords whose rent covers the interest.
What are the disadvantages of an interest-only mortgage?
You pay more interest overall, the debt doesn't shrink, and if your repayment plan falls short you may have to sell your home. Criteria are also stricter.
Can you get negative equity on an interest-only mortgage?
Yes. If prices fall, you can owe more than the home is worth, and because the balance never drops, the risk is higher than on a repayment mortgage.
Can I switch from interest-only to repayment?
Usually, yes, in full or in part, subject to an affordability check. Payments will rise, so the earlier you switch, the smaller the jump.
What happens at the end of an interest-only mortgage?
You must repay the full balance. If you can't, speak to your lender early. Options can include extending the term, switching to repayment, selling, or a retirement interest-only mortgage.
How much deposit do I need for an interest-only mortgage?
Usually more than for repayment. Many lenders cap interest-only borrowing at 75% loan to value or lower, and less if you plan to repay by selling your home.
Is interest-only right for you?
It can be, with a realistic plan for the capital and a clear view of the total cost. We can check your plan against lender criteria and show you the numbers side by side.
Sources
- FCA Handbook, MCOB 11.6 Responsible lending: interest-only mortgages (MCOB 11.6.41R to 11.6.49R)
- FCA, Retirement Interest-Only Mortgages Instrument 2018; Handbook glossary, retirement interest-only mortgage
- FCA, analysis showing fewer than 1 million interest-only mortgages outstanding, August 2023
- UK Finance, Interest-only mortgages update, 17 June 2026
- Nationwide for Intermediaries, interest-only lending criteria
- Bank of England, Monetary Policy Summary, 17 September 2026
- Payment figures: Quick Mortgages calculations at an illustrative 5.5%
Correct on 17 September 2026 and may change.
Disclaimer:
This article is for general guidance purposes only and does not constitute legal, financial, or professional advice. Mortgage products and their terms can vary, and it is important to seek advice from a qualified, regulated professional who can assess your individual circumstances. Please ensure you consider your unique needs before making any financial decisions.
While every effort is made to ensure that the information provided on this blog is accurate and up-to-date, we do not guarantee its completeness or accuracy. The mortgage market can change rapidly, and the information on this blog may become outdated. We recommend verifying any information before acting on it and seeking tailored advice.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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