Interest Only Residential Mortgages

What is an interest only residential mortgage?

Interest-only means the monthly payment covers the interest and nothing else, so the whole balance is still owed at the end of the term. Under the Financial Conduct Authority's MCOB rules, a lender may offer residential interest-only only where it has evidence that the borrower will have a clearly understood and credible strategy to repay the capital (MCOB 11.6), and it must review that strategy with the borrower at least once during the term. The sale of the mortgaged property is an acceptable strategy only where the lender is satisfied that the sale will leave enough equity to repay the loan and rehouse the borrower. Each lender then sets its own criteria on top of the rules: a minimum income, a minimum equity or a maximum loan-to-value, and a list of strategies it accepts. On a £100,000 balance at the illustrative 5.2% rate used across our guides, the interest-only payment is £433.33 a month against £596.30 on a 25-year capital repayment basis. The difference is the capital that is not being repaid.

Interest only residential mortgage rates

Interest-only residential products are usually a lender's standard products with an interest-only option, priced by loan-to-value like any residential mortgage. Where a lender restricts interest-only to lower loan-to-values, the pricing is that lower tier's. Offset and retirement interest-only products have their own pricing. Compare rate, fee and the lender's interest-only criteria together, because a product is no use to a borrower who cannot meet its repayment strategy rules.

If you are considering interest-only on your home, get in touch with your equity, income and repayment plan, and we will check which lenders' criteria you meet before comparing rates.

Interest only residential mortgage criteria

The MCOB requirement for a credible repayment strategy is regulation; the maximum loan-to-value, minimum income, minimum equity and accepted strategies are each lender's own rules. On the cases we arrange, the interest-only maximum loan-to-value is usually 75%, below the residential maximum for a repayment mortgage. Positions described as our experience are what Mortgage Lane sees on the cases it arranges with the lenders it uses, and are not a market rule, a promise about our panel or an offer. Named lender rules come from that lender's own published criteria on the date shown and can change. Every case is subject to status and lender criteria.

Types of interest-only arrangement

Full interest-only with an investment or pension strategy

The whole balance is on interest-only and is repaid at the end from investments or a pension lump sum evidenced at application. The borrower shows the plan's current value and projected growth against the balance, and lenders test the projections on their own assumptions. It can suit higher earners building capital elsewhere at a higher return than the mortgage rate. If this is your plan, have your investment or pension statements and the balance ready when you get in touch.

Interest-only with sale of the property as the strategy

This is acceptable where the lender is satisfied the equity at the end of the term will repay the loan and leave enough to rehouse. Lenders express it as a minimum equity amount, sometimes varying by region or by loan-to-value. Nationwide's published criteria, for example, ask for at least £200,000 of equity, £250,000 in the outer South East and £300,000 in Greater London and the outer metropolitan area (checked 1 October 2026; one lender's rule, which can change). It can suit borrowers with substantial equity who plan to downsize, and the first thing we need is your equity position and when you expect to move.

Part and part mortgages

Part of the balance is on interest-only and the rest on capital repayment. The interest-only part needs a strategy and sits within the lender's interest-only loan-to-value limit, while the repayment part is paid off over the term as normal. Part and part lowers the payment without the whole balance resting on a strategy, and we can size the interest-only part to the strategy you have.

Interest-only offset mortgages

Interest is charged on the balance less linked savings, and no capital is repaid. Some self-employed borrowers use it to hold tax reserves and working capital against the mortgage. The interest-only criteria apply on top of the offset terms; see offset mortgages. Tell us how your cash flow moves through the year and what equity you hold.

Retirement interest-only mortgages

A later-life product: interest is paid monthly from retirement income and the capital is repaid on sale, death or a move into long-term care, with no fixed end date and the sale of the property as the accepted strategy. It differs from a lifetime mortgage (equity release), which requires no monthly payments and is separately regulated. See the age section of our 85% LTV mortgages page, and send us your retirement income and the balance for a case review.

Switching from repayment to interest-only

A borrower on capital repayment may switch to interest-only with the lender's agreement where its interest-only criteria are met (strategy, equity, income), often as part of a remortgage. Lenders can also agree temporary switches in financial hardship under their forbearance policies, which is a different process. For a switch, we need the balance, the equity and the strategy.

Interest-only at the end of the term

A borrower whose interest-only term ends without the capital repaid has options: sale, a remortgage onto repayment or retirement interest-only, or a term extension where the lender agrees. Those options can narrow with age and falling equity, which is one reason the lender checks the strategy during the term. Get in touch well before the term ends.

How an interest only residential mortgage is arranged

1. Strategy and equity. The repayment strategy is documented (statements, valuations, projections), with the equity and income set against the lender's criteria.
2. Lender match. The case goes to lenders whose accepted strategies, minimum equity or loan-to-value, and minimum income fit, and the choice between full interest-only and part and part is made.
3. Application and assessment. A standard residential application, with the strategy assessed under MCOB, and the lender's valuation.
4. Offer, completion and strategy checks. The mortgage runs on interest-only, the lender checks the strategy during the term, and the borrower reviews the strategy's progress against the balance.

The interest-only arithmetic

Interest-only gives a lower payment now in exchange for owing the whole balance later, and the arithmetic shows both sides.

Step 1. The payment

Take an illustrative £200,000 balance at the illustrative 5.2% rate used across our guides. The payments are set out in the table at the end of this section.

Illustrative arithmetic on hypothetical figures; 5.2% is not a product rate. Not an offer of finance.

On this balance interest-only saves £325.93 a month, and the cost is the £200,000 still owed at the end. Part and part halves both.

Step 2. The strategy test

MCOB requires the lender to be satisfied that the strategy will repay the capital. For an investment strategy, the lender compares the projected value at the end of the term, on its own conservative growth assumption rather than the borrower's, with the balance; for a pension lump sum, the projected tax-free sum against the balance; for sale of the property, the projected equity against the balance plus the cost of rehousing, expressed as a minimum equity or a maximum loan-to-value today. A strategy that fails the test on the lender's assumptions will not be accepted, whatever the borrower expects.

Step 3. The equity test on sale of the property

Take a lender that, like Nationwide's published criteria outside London and the South East (checked 1 October 2026), asks for at least £200,000 of equity where sale of the property is the strategy. A £200,000 interest-only loan then needs a property worth at least £400,000, a loan-to-value of 50%, well inside the 75% interest-only maximum that we usually see on the cases we arrange. That is why sale-of-property interest-only tends to suit lower loan-to-values and higher-value homes. Other lenders set the minimum differently, and some tie it to the loan-to-value.

Step 4. The interest-only offset at the limit

Where linked savings equal the balance, the interest-only payment is nil while the capital remains owed and the savings remain accessible. That covers the payment side of the arithmetic but not the strategy test: the lender still requires a credible plan to repay the £200,000, and offset savings can be that plan only where they are evidenced as retained.

Step 5. The end of the term

At the end of an interest-only term the balance falls due. A borrower whose strategy has matured repays; a borrower whose strategy has fallen short sells, remortgages onto repayment or retirement interest-only, or negotiates an extension. The checks the lender runs during the term are there to bring a shortfall to light while there is time to deal with it.

The lender sets the rate and the criteria. The borrower controls the strategy and its evidence, the equity, the split between interest-only and repayment, and the habit of reviewing the strategy against the balance through the term.

The offset mortgages page covers the interest-only offset, the buy to let mortgage guide covers interest-only as the landlord standard, and the later-life section of 85% LTV mortgages covers retirement interest-only.