How an interest only mortgage works, and who can get one

What is an interest only mortgage?

With an interest only mortgage, your monthly payment covers only the interest on the loan, so the amount you borrowed does not go down. The whole loan falls due at the end of the term, and you repay it from a separate plan, such as savings, investments or the sale of a property. The payments are lower than on a repayment mortgage, but you pay more interest in total and carry the risk that the plan falls short.

Because of that risk, FCA rules allow lenders to agree this kind of loan only in limited circumstances. This guide explains how one works, the rules of the Financial Conduct Authority (FCA) that lenders must follow, and what happens at the end. It is information, not advice.

How do interest only mortgages work?

Each month the lender charges interest on the full amount you borrowed, and that is your payment. Nothing comes off the loan unless you choose to overpay.

Three things follow from that:

• The balance at the end of the term is the same as at the start, unless you have made overpayments.
• The payment moves with the interest rate. When a fixed deal ends, the payment changes to reflect the new rate on the whole loan.
• You need a second arrangement running alongside the mortgage to build up the money that will repay it.

The interest only mortgage calculator works out the monthly interest, the amount still owed at the end and the payment on a repayment basis for comparison.

Interest only vs repayment mortgage

On a repayment mortgage, each payment covers the month's interest and repays part of the loan, so the balance falls to nothing by the end of the term. The guide to the types of mortgage covers the other choices you make, such as fixed or tracker rates.

For the payment on a repayment basis, use the mortgage calculator.

Part and part mortgages

A part and part mortgage splits the loan in two. One portion is on a repayment basis and is cleared over the term. The other is interest only and is still owed at the end. The payment sits between the two types, and the plan to repay has to cover the interest only portion. The FCA's interest only rules apply to any mortgage with an interest only part or period.

The repayment strategy lenders must see

The rules sit in the FCA's mortgage conduct rulebook, known as MCOB. A lender may only agree an interest only mortgage, or switch a repayment mortgage to interest only, if it has evidence that you will have in place a clearly understood and credible repayment strategy. As far as the lender can reasonably assess at the time, the strategy must have the potential to repay the loan. A lender must not accept a speculative strategy.

The FCA's examples of strategies that may be acceptable, depending on the borrower's circumstances, are:

• Regular deposits into a savings or investment product.
• Periodic repayments from irregular sources of income, such as bonuses.
• The sale of other assets, such as another property or land.

The rules also name plans that point to a breach if a lender accepts them: relying on the home rising in value enough to repay the loan, and relying on an expected but uncertain inheritance.

Selling the home as the plan

Selling the mortgaged home is the most used strategy, according to the FCA. Where it is your main home, the rules expect the lender to consider whether the sale could repay the loan and still allow you to buy a cheaper home to live in, or to carry out another associated strategy. In its June 2026 consultation the FCA gave renting or moving in with family as examples of such a strategy. The FCA says the majority of lenders set a minimum amount of equity at the start of the mortgage to meet this requirement.

Checks during the term

When a lender assesses whether you can afford the mortgage on the basis of interest only payments, it must count the cost of your repayment strategy as part of your committed spending. For most such mortgages taken out on or after 26 April 2014, the lender must also review the strategy at least once during the term, contacting you to check that the plan is still in place and still has the potential to repay the loan. The review has to happen at a stage when there is likely to be enough time left for you to put things right.

Changes proposed in 2026

On 9 June 2026 the FCA opened a consultation on easing these rules, in a paper numbered CP26/18. These are proposals, not rules. They included removing the need for a repayment strategy where the interest only part is less than 25% of the lender's valuation, and adding a follow-on product such as a later-life mortgage, or conversion to repayment within a reasonable period, to the examples of credible strategies. The FCA said the changes were targeted and would not make interest only mortgages universally accessible. The consultation closed on 28 July 2026, and the FCA said it aimed to publish a policy statement in the second half of 2026. When this guide was checked on 10 November 2026, the FCA had not published that policy statement, so the rules described above were still the ones in force. The FCA's mortgage rule review page carries the latest position.

Who can get an interest only mortgage?

The FCA's rules are the floor. Each lender must have its own written policy on interest only lending, and FCA guidance says its controls may include maximum loan to value limits and minimum equity requirements. For a home you live in, lenders' conditions commonly include:

• A lower maximum loan to value, which means a bigger deposit or more equity.
• A minimum income, for one borrower or for joint borrowers together.
• A minimum amount of equity where the sale of the home is the plan.
• Evidence of the repayment strategy, such as statements for the savings or investments.
• A list of the strategies they accept.

Not every lender offers interest only lending to people buying a home to live in. The conditions vary from lender to lender and change often, so treat this list as the pattern, not as any one lender's terms.

The guide to loan to value explains how the deposit sets the deals open to you, and the guide to mortgage affordability explains how lenders test your income and spending. A qualified, regulated mortgage adviser can check which lenders' conditions fit your circumstances; the guide to using a mortgage broker explains how advisers work.

First-time buyers

The FCA reports that since 2013, sales of any kind of interest only product to first-time buyers have been less than 0.5% of all sales. Across the whole market, interest only fell from 38.8% of mortgage sales in 2007 to 5.4% in 2014, when the current rules came in. So while no FCA rule stops a first-time buyer borrowing this way, it has been rare in practice.

Interest only on a new build

The FCA's interest only rules do not treat a new home differently, but two things can make this kind of borrowing harder to arrange on one.

First, lenders that accept the sale of the home as the plan commonly want a minimum amount of equity, and many buyers of new homes start with a small deposit. Second, some lenders set a lower maximum loan to value on new-build homes, particularly flats, which applies as well as their interest only limits.

A lender's conditions for the specific plot can be confirmed before you reserve. The guide to new build mortgages explains how lenders look at new homes, and the mortgage rates comparison shows what lenders publish for your price and deposit, on a repayment basis, as an illustration.

What happens at the end of the term

At the end of the term the whole loan is due. If your strategy has worked, you repay it and the mortgage ends. If it has not, the choices usually discussed with a lender are:

• Repaying part of the loan now and agreeing a plan for the rest.
• Switching all or part of the loan to a repayment basis.
• Extending the term, which the lender may assess for affordability.
• Remortgaging with another lender, which means a new application.
• Selling the home and moving to a cheaper one.
• A later-life mortgage, covered below.

The guide to remortgaging explains the checks on a new application.

What the FCA expects of lenders

Since 22 July 2025, an FCA rule requires lenders to deal fairly with customers whose mortgage term has ended with a balance outstanding. A lender must not take repossession action unless all other reasonable attempts to resolve the position have failed. The Financial Ombudsman Service takes the same line: repossession should always be the last resort, and it expects a lender to have listened, considered reasonable requests such as a term extension or a switch to repayment, and explained why if it could not help.

The scale is large. The FCA counted 750,000 interest only mortgages and a further 245,000 that were part interest only outstanding at 31 December 2022, and said the greatest numbers were set to mature in 2031 and 2032.

Reducing the loan before the end

Overpayments reduce an interest only loan directly, and each one also lowers the interest charged from then on. Deals with an early repayment charge commonly limit overpayments before that charge applies. The guide to mortgage overpayment sets out the limits and what to weigh, and the mortgage overpayment calculator shows the effect in pounds.

Switching to interest only for a short time

Interest only can also be a temporary measure on a repayment mortgage. Under the Mortgage Charter, republished by HM Treasury on 26 March 2026, lenders that have signed it let customers who are up to date with their payments switch to interest only payments for six months. This can be done on a one-off basis, without a new affordability check and without affecting the customer's credit score. The Charter warns that monthly payments afterwards may be higher than they would have been, and that the overall cost of the mortgage will be higher. A permanent switch to interest only is different: affordability is checked, and the repayment strategy rules above apply.

Retirement interest only mortgages

A retirement interest only mortgage is a separate product for older borrowers. The FCA defines it as an interest only mortgage, restricted to older customers above a specified age, where the lender is not entitled to seek full repayment until a specified life event. That event is usually the borrower's death or move into residential care, and the loan is then repaid from the sale of the home.

You pay the interest during the term, and the FCA's definition lets the lender seek repayment earlier if you breach the contract, including an obligation to pay interest, in a way that allows it to end the agreement. That is the difference from the usual lifetime mortgage, where the interest is added to the debt instead of being paid each month. Since 23 March 2018 the FCA has regulated retirement interest only mortgages under its standard mortgage rules, not its equity release rules.

Two rules protect borrowers. A firm must tell anyone looking to take one out that a lifetime mortgage may be available and more appropriate. And when two people borrow together, FCA guidance says the lender should consider whether one borrower could keep up the payments if the other died. The FCA proposed removing that guidance in its June 2026 consultation, and it remained in place when this guide was checked.

These remain a small market: FCA figures for borrowers aged 55 and over show 3,002 retirement interest only sales in 2025, against 26,974 lifetime mortgages.

Interest only on buy to let

The rules described in this guide are about regulated mortgages on a home the borrower lives in, and the Mortgage Charter states that its commitments do not apply to buy-to-let mortgages. Lenders set their own terms for landlords, so the deposit, the checks and the repayment plan can differ from those for a home you live in.

Questions to ask before you choose

1. How will the loan be repaid, and what evidence of that plan does the lender need?
2. What is the lender's maximum loan to value and minimum income for interest only?
3. How much more interest would you pay over the term than on a repayment basis?
4. Could a part and part mortgage reduce the amount left at the end?
5. What overpayments does the deal allow without a charge?
6. When will the lender review the plan with you?

The mortgage hub gathers the calculators, the lenders' published rates and the other mortgage guides.