Since the mortgage crisis of the late 2000s and the subsequent Mortgage Market Review (MMR), UK lenders cannot lend on an interest-only basis without a credible strategy for repaying the capital. This is known as a "repayment vehicle."
Speculation that "house prices will go up" is rarely accepted as a valid vehicle for residential owner-occupier mortgages anymore, except in very specific high-equity circumstances.
Lenders will write to you periodically throughout the mortgage term to check that your repayment vehicle is performing as expected. If it is underperforming, you may be asked to switch part of the loan to repayment or increase your monthly capital payments.
Getting a residential interest-only mortgage is significantly harder than it was two decades ago. The "criteria crunch" means these products are now largely the domain of wealthier borrowers.
The landscape for Buy-to-Let investors is entirely different. Interest-only remains the industry standard for landlords. Approximately 90% of BTL mortgages are interest-only.
Why? Landlords treat the property as a business asset. The goal is monthly profit (rental yield minus mortgage costs). Paying down capital reduces monthly profit and ties up cash that could be used for repairs or further deposits. The repayment vehicle for BTL is almost universally the eventual sale of the property or refinancing.
However, recent tax changes and higher interest rates in 2024-2026 have squeezed BTL margins, making the lower monthly payments of interest-only products even more critical for landlord viability.
A relatively modern innovation, RIO mortgages are designed specifically for older borrowers who may struggle to get a standard mortgage due to age limits.
Key Features of RIO:
RIO serves as a middle ground between standard mortgages and equity release, offering a way to release capital or remortgage in retirement without the compounding interest roll-up of equity release schemes.
While the lower payments are attractive, the risks are substantial and must not be ignored.
If you cannot repay the capital lump sum at the end of your interest-only mortgage term, you face serious risks including the repossession of your home. Lenders may offer extensions or allow you to switch to a repayment mortgage if affordable, but typically, the property must be sold to cover the debt.
Yes, most lenders allow you to switch from interest-only to a capital repayment mortgage. This will increase your monthly payments significantly, but ensures the debt is cleared by the end of the term. You can also often make a 'part and part' arrangement.
It is extremely rare for first-time buyers to obtain residential interest-only mortgages in 2026. Lenders typically require substantial equity (often 25-50%) and high income thresholds, which excludes most new market entrants.
Acceptable vehicles usually include Stocks & Shares ISAs, pension lump sums, investment bonds, other investment properties, or the sale of the mortgaged property itself (though this is often restricted to specific products like RIO or BTL).
A RIO mortgage allows older borrowers to pay only interest monthly with no fixed end date. The loan is repaid when the borrower dies, moves into long-term care, or sells the property. Affordability is based on retirement income.
While not 'always', the vast majority of Buy-to-Let (BTL) mortgages are interest-only. This maximises monthly cash flow for landlords and leverages the asset growth, with the debt usually covered by selling the property or refinancing later.
Interest-only mortgages carry higher risk for lenders because the capital balance doesn't decrease over time. Consequently, some lenders may price these products slightly higher or restrict them to lower Loan-to-Value (LTV) ratios to mitigate their exposure.