Interest-Only Mortgage Affordability & Criteria

With an interest-only mortgage your monthly payments cover the interest and nothing else. The amount you owe never falls: the full capital is due in one lump at the end of the term, repaid through an approved repayment strategy (sometimes called a repayment vehicle) that the lender signs off at application. That single difference drives everything else about how lenders assess these mortgages.

How interest-only works

On a repayment mortgage, each monthly payment chips away at the capital, so by the end of the term you owe nothing. On interest-only, you are effectively renting the money: payments are much lower, but after 25 years you still owe every pound you borrowed. Lenders therefore treat interest-only as a higher-risk product for owner-occupiers and wrap it in extra criteria — they need to believe, with evidence, that the capital genuinely will be repaid.

That is also why residential interest-only is assessed far more strictly than buy-to-let, where interest-only is the default and the property itself is the exit (see our buy-to-let affordability guide).

Repayment vehicles lenders accept

Each lender publishes its own list of acceptable strategies, but the common ones are:

Sale of the mortgaged property. The most common strategy — and the most restricted. Because you have to live somewhere after the sale, lenders usually require substantial minimum equity, commonly in the £200,000-£300,000 range, with some lenders setting higher figures for London and the South East. The idea is that the remaining equity must plausibly rehouse you.

Sale of another property. A second home or investment property can serve as the vehicle, with evidence of ownership, value and any mortgage secured on it.

Investments. ISAs, share portfolios and endowments are widely accepted, with statements or projections as evidence. Lenders typically discount the value rather than taking it at face — growth is not guaranteed.

Pension tax-free lump sum. Lenders will usually count only the 25% tax-free cash, based on evidence of the projected pension value at the end of the mortgage term.

Typical criteria: LTV, equity and income floors

On top of an approved repayment vehicle, expect three recurring criteria themes:

Lower maximum LTV. The interest-only portion of the loan is commonly capped somewhere between 50% and 75% LTV, depending on the lender and the repayment strategy. Pure interest-only at high LTV is rare for owner-occupiers.

Minimum income floors. Some lenders still apply them — historically £75,000-£100,000 sole income was a common benchmark, though several lenders have dropped or lowered these floors in recent years. This is one of the most variable criteria in the market, which is exactly why a multi-lender check pays off.

Strong credit profile. Interest-only is rarely offered as a workaround for affordability stress; lenders expect a clean file and a coherent story for why interest-only suits you.

Expect to evidence everything at application: investment statements, pension projections, proof of equity in another property. Lenders are not ticking a box — underwriters check that the vehicle plausibly grows to cover the loan by the end of the term, and a vague "I'll sell something" will not pass. Where the strategy is selling the mortgaged property, some lenders also apply regional sense-checks on whether the remaining equity could realistically rehouse you locally.

The affordability quirk: lower payments, not bigger loans

Here is the part that surprises most applicants. Logic says: payments are lower, so I can afford a bigger loan. Lenders mostly disagree. Many assess interest-only affordability on a capital repayment basis — can you afford this loan as if it were a repayment mortgage over the term? Some go further and stress it over a shorter notional term or to a higher rate (residential stress rates commonly sit around 6-8.5% at the time of writing).

The result: the lower monthly payment does not translate into a bigger maximum loan — and once the lower LTV caps, equity minimums and income floors are layered on, some lenders will offer you less on interest-only than they would on repayment. The spread between lenders is wide, so the only way to know your real number is to check across the market.

Worked example: £300,000 interest-only vs repayment

That last line is the quirk in action: the £542 saving is real cashflow, but it is not extra borrowing power, because the affordability test is typically run against the repayment figure.

Part-and-part, buy-to-let and RIO

Part-and-part splits the mortgage: part on capital repayment, part interest-only. The repayment slice steadily reduces the debt, the interest-only slice keeps the monthly cost down, and lenders often allow part-and-part to a higher overall LTV than pure interest-only. It is the practical middle ground when you cannot meet full interest-only criteria. On the £300,000 example above, a 50/50 split would cost roughly £1,396 a month — £271 less than full repayment — while still clearing half the debt by the end of the term.

Buy-to-let is typically interest-only by default and plays by different rules — lending is sized on rent and stress rates rather than personal affordability.

Retirement interest-only (RIO) mortgages suit older borrowers: there is no end date, the loan is repaid when the property is sold on death or a move into long-term care, and affordability is assessed on whether you can cover the interest for life. We cover RIO and the alternatives in our guide to mortgages later in life.

Risks to understand before you commit

Shortfall at maturity. If your investments underperform or the property market disappoints, the vehicle may not cover the capital. The FCA expects lenders to contact interest-only borrowers during the term to check repayment plans are on track — those letters are worth acting on, not filing.

Switching to repayment later costs more. The longer you stay interest-only, the less time remains to clear the capital. Switching a £300,000 balance to repayment with 15 years left costs far more per month than starting on repayment over 25.

Refinancing risk. Criteria can tighten. A strategy a lender accepts today may be harder to place at your next remortgage, particularly if your equity or income position has changed.

Frequently asked questions

Last updated: June 2026