Interest Only Mortgage Advice
An interest only mortgage requires you to pay only the interest each month — the capital balance remains unchanged throughout the term. Monthly payments are significantly lower than a repayment mortgage at the same rate and balance. On a 400,000 mortgage at 4.5%, the interest only monthly payment is 1,500 versus approximately 2,220 on a full repayment basis — a difference of 720 per month. At the end of the term, the full 400,000 balance remains and must be repaid through the agreed repayment vehicle.
Who Interest Only Works For
Interest only mortgages suit specific borrower profiles. High earners with significant liquid assets who prefer to deploy capital in investments rather than mortgage repayment. Self-employed buyers with variable income who want lower mandatory monthly outgoings in lower-income periods. Older buyers who plan to downsize — the sale of the property at the end of the term provides the repayment vehicle. Buy-to-let investors where the rental income covers interest payments but not full repayment. Buyers purchasing a property below their income level who want flexibility to overpay in good years without mandatory monthly capital payments.
| £400,000 Mortgage at 4.5% | Monthly Payment | Over 25 Years | Capital Remaining |
|---|---|---|---|
| Full repayment | £2,222 | £666,600 | £0 |
| Interest only | £1,500 | £450,000 | £400,000 |
| Part and part (50/50) | £1,861 | £558,300 | £200,000 |
| Interest only with £500/month overpayment | £2,000 | £600,000 | £250,000 approx |
Interest Only Repayment Vehicles
Lenders require a credible repayment vehicle for interest only mortgages — a specific plan for repaying the capital at the end of the term. Acceptable repayment vehicles vary by lender but typically include: investment portfolio (ISAs, bonds, equities) of sufficient size or with projected growth to cover the balance; pension lump sum where the projected value exceeds the loan balance; sale of the property (accepted by some lenders for downsizing cases); sale of another property in the background; endowment policies or other savings vehicles. Lenders typically require annual or periodic evidence that the repayment vehicle is on track.
Interest Only in Hampshire and Surrey
The Hampshire and Surrey property markets — with higher average purchase prices than most of the UK — make interest only particularly relevant for two buyer profiles. First, the high-earning professional buying a 700,000 to 1.5 million property in Winchester, Guildford or Onslow Village where the monthly repayment payment would be 3,700 to 8,000 and the buyer prefers lower mandatory outgoings with disciplined ISA saving alongside. Second, the older downsizer buying in Godalming or Haslemere where the property being vacated in London or a larger Surrey home provides the repayment vehicle at a known future date. We identify interest only lenders appropriate for each specific profile and repayment vehicle.
Part and Part Mortgages
A part and part mortgage combines interest only and repayment on the same loan. On a 400,000 mortgage, 200,000 on repayment and 200,000 on interest only produces a monthly payment of approximately 1,861 — between the two extremes. At the end of the term, 200,000 remains to be repaid through the agreed vehicle on the interest only portion. Part and part is the most practical structure for buyers who want lower monthly outgoings than full repayment but who are uncomfortable with a 100% interest only structure. We model part and part alongside pure options before recommending.
We confirm interest only eligibility and the right repayment vehicle structure for your specific circumstances before any application. Call 01252 111 000 →