Interest-Only Mortgages: Who Still Offers Them?

Interest-only mortgages had their heyday in the 2000s when nearly half of all UK mortgages were interest-only. After the financial crisis and the Mortgage Market Review, they became much harder to get. But they haven't disappeared. In 2026, interest-only residential mortgages are still available — you just need to know where to look and what lenders require.

How Interest-Only Mortgages Work

With an interest-only mortgage, your monthly payments cover only the interest on the loan. You don't pay back any of the capital (the original amount borrowed). At the end of the mortgage term, you owe the full amount you originally borrowed.

Example: £200,000 mortgage at 4.5% over 25 years

The monthly saving is £361 — substantial. But at the end of 25 years, you still owe £200,000 and need a plan to repay it.

Why Interest-Only Became Restricted

In the years before 2008, lenders were relaxed about repayment vehicles. Many borrowers took interest-only mortgages with vague plans to repay the capital through:

• Endowment policies (which famously underperformed)
• "The property will go up in value" (property prices fell)
• "Something will come up" (nothing came up)

When the Mortgage Market Review (MMR) rules came in 2014, the FCA required lenders to verify that borrowers had a credible plan to repay the capital. This dramatically reduced the availability of interest-only residential mortgages.

Who Still Offers Interest-Only Residential Mortgages?

Mainstream Lenders (With Strict Criteria)

Several mainstream lenders still offer interest-only for residential purchases, but with significant conditions:

• Barclays — interest-only available with acceptable repayment vehicle
• HSBC — available for higher-value mortgages
• Nationwide — limited interest-only options
• NatWest — available with strict criteria

Typical mainstream requirements:

• Minimum loan amount: often £100,000-£300,000+
• Maximum LTV: 50-75% (you need substantial equity)
• Minimum income: some lenders set floors of £75,000-£100,000+
• Verified repayment vehicle: savings, investments, property sale, pension

Building Societies

Some building societies offer interest-only with more flexible criteria:

• Leeds Building Society
• Yorkshire Building Society
• Bath Building Society
• Principality Building Society

Specialist Lenders

• Kensington — interest-only options available
• Aldermore — case-by-case assessment
• Together — flexible on interest-only

Acceptable Repayment Vehicles

Lenders need to see a realistic plan for repaying the capital at the end of the term. Commonly accepted vehicles:

Sale of the Property

If you plan to sell the mortgaged property and downsize, the sale proceeds can repay the capital. Lenders may accept this if:

• You have substantial equity (typically 50%+ at the end of the term)
• Property values would need to fall significantly before you couldn't repay
• You're not relying on property price growth to cover the shortfall

Investments and Savings

ISAs, investment portfolios, shares, or other savings earmarked for repayment. Lenders want to see:

• The investments actually exist (not theoretical future savings)
• The projected value at maturity is sufficient
• The investment strategy is reasonable (not highly speculative)

Pension Lump Sum

Your pension tax-free lump sum (typically 25% of the pot) can be used. Lenders will want evidence of:

• The current pension value
• The projected value at retirement
• That the 25% lump sum will cover the mortgage balance

Sale of Another Property

If you own additional property, the planned sale can serve as a repayment vehicle. Evidence of ownership and current value is needed.

Endowment Policies

Still accepted if you have one, though endowments are no longer sold. If your existing endowment has a projected maturity value that covers the mortgage, it remains a valid vehicle.

Interest-Only for Buy-to-Let

This is where interest-only remains widely available. Most buy-to-let mortgages are interest-only, because:

• The rental income covers the interest payments
• The property itself is the investment — the exit strategy is to sell the property
• Landlords prefer lower monthly costs to maximise rental yield
• The tax treatment (since Section 24 mortgage interest changes) makes interest-only more complex but still common

Almost all BTL lenders — mainstream and specialist — offer interest-only terms.

Retirement Interest-Only (RIO) Mortgages

For older borrowers, Retirement Interest-Only mortgages are a growing product category:

• You pay only the interest each month
• The capital is repaid when the property is sold — typically when you die, move into care, or sell voluntarily
• No fixed term — it continues until a life event triggers sale
• Available from lenders including Leeds Building Society, Bath Building Society, Nationwide, and Hodge

RIO mortgages are regulated differently from standard interest-only and are specifically designed for borrowers in or approaching retirement.

The Risks of Interest-Only

You Don't Build Equity Through Payments

On a repayment mortgage, every payment reduces what you owe. On interest-only, your debt stays the same for the entire term. The only equity you build comes from property price increases — which aren't guaranteed.

The Day of Reckoning

When the term ends, you need to repay the full amount. If your repayment vehicle hasn't performed (investments declined, property prices fell, pension projections missed), you face a serious problem. Options at that point may include selling, downsizing, switching to a repayment mortgage for a remaining term, or extending the mortgage.

Lender Action at Term End

Lenders are increasingly proactive about contacting borrowers as their interest-only term approaches. If you can't repay, they'll work with you — but the options become limited. Some borrowers effectively become mortgage prisoners at this point.

Is Interest-Only Right for You?

Interest-only makes sense if:

• You have a genuine, funded repayment vehicle
• You need lower monthly payments and can use the savings productively
• You're a high-net-worth borrower with assets exceeding your mortgage
• You're a landlord where the property IS the investment
• You're an older borrower where a RIO mortgage suits your circumstances

It may not be right if:

• Your only repayment plan is "property will go up"
• You'd use the savings for lifestyle spending rather than investment
• You don't have a substantial equity buffer
• You'd worry about owing the same amount in 25 years

Plan the Exit Before the Entrance

The single most important thing with any interest-only mortgage is knowing how you'll repay it. The best time to plan your exit strategy is before you take the mortgage — not 20 years later when options have narrowed. Talk to a financial adviser about repayment vehicles, and review your plan regularly.

This is educational content, not financial advice. Your situation is unique — speak to a qualified mortgage broker before making any decisions.