Interest-only residential mortgages can sound appealing – paying just the interest each month keeps repayments significantly lower than a standard mortgage. But, as with many seemingly simple things, there’s more to it than meets the eye.

Interest-only mortgages have some of the strictest criteria in residential lending. Lenders require a clear plan for repaying the full loan at the end of the term, and rules on income, equity, and repayment strategies vary between providers. Before applying, it’s often helpful to discuss your options with a specialist broker who can review your eligibility against current lender criteria.

Whether you’re considering a new purchase or a remortgage, knowing if you meet lender criteria is the first step. This guide breaks down exactly what lenders look for, and what you’ll need in place before applying.

What is an Interest-Only Residential Mortgage?

An interest-only residential mortgage is exactly what it sounds like, a mortgage where you only pay the interest due on the loan each month, rather than repaying any of the original capital. Your monthly outgoings are lower, but the full loan balance remains outstanding until the term ends, when it must be repaid in a lump sum. 

Because of this, lenders are cautious and require a verifiable repayment plan – often referred to as a repayment strategy or repayment vehicle – to demonstrate how the loan will be repaid. Without this, interest-only lending is usually declined.

There are three main repayments structures:

• Capital and Interest (C&I) – Monthly payments reduce both the interest and loan balance.
• Interest Only (IO) – Monthly payments only cover the interest; the loan balance remains unchanged.
• Mixed Repayment (Part & Part) – A blend of the two, where one portion of the loan is interest-only, and the other capital and interest.

It’s important to note that availability varies by lender. Some, like Barclays, support interest-only lending for purchases (including first-time buyers), remortgages and porting. Others, like Teachers Building Society restrict interest only to high-net-worth clients, while the Bank of Ireland offers interest only exclusively through its bespoke range.

How Loan-to-Value (LTV) Shapes Your Interest-Only Options

Loan-to-Value (LTV) limits are one of the biggest hurdles for interest-only mortgages. Because the lender receives no capital repayment during the mortgage term, the maximum borrowing is usually lower than for standard mortgages.

Across the UK, interest-only LTV generally ranges between 50% and 75%, depending on lender, income, and repayment strategy. Some lenders, like Accord Mortgages, Santander, Barclays and Co-operative bank, allow up to 75% on interest-only, and up to 85% overall if part of the loan is on capital and interest.

Others, such as Principality Building Society, Penrith Building Society and Aldermore all cap interest-only borrowing at 50% LTV regardless of the applicant’s profile. Some specialist providers may offer more flexibility, but tend to apply strict conditions to offset the added risk.

Proving Your Repayment Plan: What Lenders Need To See

To qualify, borrowers must provide a documented plan for repaying the loan. This is usually submitted through an Interest-Only Declaration Form, which outlines the exact details of your repayment strategy.

Commonly Accepted Strategies:

• Sale of the Mortgaged Property (Downsizing): Widely accepted but subject to strict rules regarding minimum equity requirements (covered in more detail in the next section). 
• Sale of Other Property: You will need to demonstrate that the equity in the property is sufficient to cover the full mortgage balance. 
• Investments, Savings or ISAs: Stocks and Shares ISAs, Investment Plans, Unit Trusts/Investment Bonds, Cash ISAs or other savings options can be used, often needing to be held for two years in GBP and in all borrower’s names.
• Pension Plan: Suited to higher earners or those nearing retirement, this approach relies on the projected tax-free cash sum from a pension (typically 25% of a Defined Contribution fund, or the full tax-free amount from a Defined Benefit scheme).
• Existing Endowment Policy: Accepted by some lenders, provided projected maturity value meets or exceeds the loan amount.

Unacceptable Repayment Strategies:

Certain plans are not allowed under any circumstance. These include: 

• Anticipated inheritance
• Foreign currency holdings 
• Moving in with family or renting at term end
• Vague savings plans 
• Reliance on irregular lump sum repayments 

Minimum Equity Requirements for Interest-Only Residential Mortgages 

For repayment via downsizing, lenders impose strict minimum equity thresholds to ensure sufficient funds remain for a new property. 

Large UK lenders typically require between £200,000 and £300,000 in minimum equity for properties outside London and the South East. This is increased to between £300,000 to £500,000 in minimum equity for properties within or around Greater London. Some lenders set a fixed monetary requirement (such as Santander who require a minimum equity of £300,000 in the property), while others assess the potential sale proceeds in relation to the property values in your local area.

How Lenders Assess Affordability for Interest-Only Mortgages 

Even with lower payments, lenders assess affordability strictly, often as if the loan were on a C&I basis. 

For Barclays, along with most other major banks, this means the monthly repayment is calculated over an assumed 25-year term (or up until age 70, or the borrower’s normal retirement age, whichever is sooner) 

Specialist lenders, such as United Trust Bank (UTB) sometimes assess affordability directly on an interest-only basis, although this is less common and usually reserved for complex or high-net-worth cases.

Minimum Income Thresholds

Some lenders set minimum income requirements for interest-only or Part and Part applications to ensure that borrowers have sufficient financial resilience:

• Co-operative Bank: £60,000 for single applicants, or £80,000 for joint applicants.
• Bank of Ireland (New/Bespoke): £50,000 for single applicants or £75,000 jointly (if one applicant does not earn £50,000).
• Saffron Building Society (Premier Income): £150,000.
• Saffron Building Society (Professional Income Boost): £30,000 for the professional applicant, or £50,000 for joint applications.
• Bath Building Society: £20,000 after deductions.
• Accord Mortgages: No minimum; standard affordability applies.

Existing customers seeking additional funds or porting must meet current standards. 

Age Limits and Term Restrictions for Interest-Only Mortgages

Interest-only mortgages usually have shorter terms and age limits than standard loans. 

Maximum Term Limits

While most residential mortgages can run for up to 35 or 40 years, interest-only terms are usually shorter – typically limited to 25 years. This 25 year limit is used by several major lenders, including Barclays (inc. Part and Part), Vernon Building Society, Principality Building Society and West Bromwich Building Society. Some lenders do allow longer terms, such as The Co-operative Bank, who offers a maximum term of up to 40 years for both residential and interest-only mortgages.

Maximum Age at Maturity

Lenders set a maximum age at which the interest-only loan must be fully repaid. This is typically around 70 years old, however several lenders extend this age limit further.

• Age 70: Barclays, Santander, Principality Building Society and West Bromwich Building Society.
• Age 71: Accord Mortgages 
• Age 75: Bank of Ireland.
• Age 85: Bath Building Society and United Trust Bank.

Lending into Retirement

Many lenders, including Barclays, will restrict the term of the interest-only mortgage, preventing it from extending into retirement. If the applicant is relying on post-retirement income to meet the affordability requirements, then in most cases, an interest-only mortgage would not be accepted.  

Key Restrictions from Major UK Lenders

Not all lenders treat interest-only residential mortgages the same way. Each has its own set of rules, reflecting how cautious it wants to be with this type of borrowing. 

Debt Consolidation Restrictions

Debt consolidation is a major restriction across the board. Borrowers generally cannot use an interest-only mortgage to consolidate existing debts, whether on new borrowing or additional advances. A few small exceptions exist, such as consolidating a drawn mortgage reserve balance, or adding an Early Repayment Charge (ERC) when remortgaging from a competitor.

Part and Part Restrictions

Some lenders are open to Part and Part structure, but these too come with specific rules:

• The Co-operative Bank does not accept any new interest-only applications on a part/part basis.
• West Bromwich Building Society prohibits the Part & Part Combined Repayment Method entirely.
• Accord Mortgages allows Part and part arrangements but caps the interest-only elements at 75% LTV, and total borrowing cannot exceed 85% LTV.

Joint Borrower Sole Proprietor (JBSP) Cases 

Interest-only lending is generally restricted for JBSP structures, where one party helps with affordability but isn’t on the property title. Accord Mortgages states that all JBSP loans must be on a capital and interest basis; interest-only is not allowed. 

Evidence and Plausibility Checks 

All lenders require documentation at the application stage. Some lenders, such as Barclays, go further by requiring a “plausibility check” to verify that the current asset value of the repayment vehicle is sufficient to cover the mortgage balance. Documents provided for evidence, such as statements, must be recent (usually less than a year old).

Specific Loan Purpose Restrictions

Government schemes like Help to Buy or Shared Ownership usually require a standard capital & interest repayment scheme. 

The Bottom Line: Can You Qualify for an Interest-Only Residential Mortgage? 

Interest-only residential mortgages come with significantly more detailed, and restrictive eligibility criteria than for standard repayment mortgages. For applicants, this means being prepared – not just financially, but also in terms of documentation and planning. 

Here are the main takeaways to keep in mind before applying:

• You’ll need a credible, proven repayment strategy. Lenders will only consider structured, verifiable methods held in GBP such as investment plans, pension lump sums, or the sale of another UK property. Inheritance, general savings, or moving into rented accommodation won’t qualify.

• Equity is key (if downsizing). If you plan to sell your home to repay the loan, you must meet strict minimum equity thresholds, often ranging from £150,000 to £500,000, depending on the region and lender.

• Affordability is assessed more tightly than it looks. Even with lower monthly payments, most lenders calculate affordability as if you were repaying the loan on a full capital and interest basis.

• Your age and income play a decisive role. Interest-only terms often end by age 70 or 71, and loans generally cannot extend into retirement unless sufficient non-employment income is proven.

• Debt consolidation is usually off the table. Interest-only lending is not designed to pay off other debts and is largely prohibited.

Given these criteria vary widely, speaking with an experienced broker can help you identify which lenders accept your strategy and prepare the right documentation. Here at AALTO Mortgages, we can guide you through the process to maximise approval chances.