# Interest-only mortgage explained

> Mortgages & first homes · Last updated 4 July 2026

Canonical HTML: https://moneyguide.org.uk/mortgages/interest-only-mortgage-explained/
Markdown mirror: https://moneyguide.org.uk/mortgages/interest-only-mortgage-explained.md

## Quick answer

Interest-only mortgages mean monthly payments cover interest only — the capital must be repaid at the end via savings, investments or selling the property.

## Who should skip this

Skip this page if you need a personal recommendation or a live quote. This is general UK information — confirm today's figures with the official source linked below.

Most residential interest-only lending now requires credible repayment strategies. Buy-to-let often remains interest-only. FCA rules tightened after the financial crisis. This guide explains risks and repayment plans.

## Key facts

- Monthly payments cover interest only — original loan amount remains until repaid
- Residential interest-only requires proof of repayment strategy — pension, ISA, sale or endowment
- At term end you must repay capital in full or remortgage — failing risks repossession
- Buy-to-let interest-only is common but tax relief rules changed — profits depend on rent and costs

## Repayment strategies

Lenders accept ISAs, pensions, sale of property or other assets as planned repayment — they may review periodically. You must evidence a credible strategy, not just hope house prices rise.

Relying on house price growth alone is rarely accepted without other assets — property values can fall. Lenders want a diversified repayment plan covering the full loan at maturity.

## Switching to repayment

Many borrowers remortgage to capital repayment before term ends to chip away at debt gradually. Switching before the interest-only period ends avoids a repayment cliff edge.

Part-and-part deals split the loan between repayment and interest-only portions. This reduces monthly payments while still paying down some capital each month.

## Buy-to-let context

Landlords often use interest-only to maximise cash flow, repaying via sale or refinancing. Mortgage interest no longer fully deductible against rental income — use allowable expenses rules.

Stress tests apply at higher rates when applying for new BTL loans. Lenders typically test affordability at a rate several percentage points above the product rate.

## Frequently asked questions

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

Very difficult — most residential first-time buyer products require capital repayment.

### What if my endowment underperforms?

Historical endowment shortfalls show why monitoring repayment vehicles matters — top up savings if projections fall short.

### Are retirement interest-only mortgages different?

RIO mortgages suit older borrowers — interest-only with repayment typically from property sale after death or move to care.

## Primary source

https://www.moneyhelper.org.uk/en/homes/buying-a-home/mortgage-calculator

## Related

- [Deposit how much do I need](https://moneyguide.org.uk/mortgages/deposit-how-much-do-i-need/)
- [How much can I borrow](https://moneyguide.org.uk/mortgages/how-much-can-i-borrow/)

---

Independent UK money guidance from [Money Guide](https://moneyguide.org.uk). Information only — not regulated financial advice.