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Interest-Only Average UK Mortgage Costs

Unsure what total mortgage cost you might pay on an interest-only mortgage in the UK? Here we explore the average rates and the variables that feed into your eligibility for the most competitive interest-only deals.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-07-17
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Interest-Only Average UK Mortgage Costs

When considering different mortgage types, it can be challenging to calculate a direct comparison between different terms, costs, repayment structures and rates.

In this article, Revolution Brokers explains how to calculate the actual cost of your UK mortgage borrowing to help you make an educated decision.

For more support with working out the most advantageous lending for your property purchase, contact Revolution on 0330 304 3040 or email the team at [email protected].

Is an Interest-Only Mortgage Worth Considering?

Interest-only mortgages mean paying only the interest in your monthly payment, without any of the original loan value being repaid.

The capital balance falls due in full at the end of the mortgage period.

AboutAbout your mortgage
Single or joint mortgage?
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about your mortgage

Based on your yearly income,
you may be able to borrow

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Most lenders will let you borrow 4.5 times your annual salary so, as long as you have a standard 10% deposit, you should be able to borrow this much.

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Depending on your personal circumstances, some lenders may let you borrow 5 times your salary.

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Lenders usually cap the amount they lend at 5.5 times your salary, so it’s unlikely you’ll be able to borrow more than this.

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How Much Does an Interest-Only Mortgage Cost?

The costs between a repayment and interest-only mortgage aren't directly comparable. That is because, if you borrowed say £100,000 interest-only, at 5% interest you would pay £417 per month.

While that cost is low, when you get to the end of a 25-year typical mortgage term, you still owe the original £100,00 borrowed.

Lenders need to know how you plan to repay that balance and need a demonstration of your repayment vehicle before offering an interest-only mortgage.

Which is More Expensive - A Repayment Mortgage or Interest-Only?

Interest-only lending is cheaper in terms of monthly payments since you're only paying the interest and no element of the capital borrowed.

However, the amount you borrowed does not decrease, and so the total interest cost is higher over the term of the mortgage.

The right lending isn't just about monthly costs but is about your plans for the property, what deposit you can offer, and your other financial circumstances.

Below is a comparison between the monthly costs of repayment and interest-only mortgages on a like-for-like basis of 5% interest over 25 years:

Mortgage value

Interest-only monthly cost

Repayment monthly cost

£30,000

£125

£175

£40,000

£167

£234

£50,000

£208

£292

£60,000

£250

£351

£100,000

£417

£585

£120,000

£500

£702

£130,000

£542

£760

£150,000

£625

£877

£200,000

£834

£1,170

£250,000

£1,042

£1,462

£300,000

£1,251

£1,754

£400,000

£1,668

£2,339

£500,000

£2,085

£2,924

How Can I Work Out my Monthly Mortgage Costs?

Mortgage calculators can be useful if you know what mortgage value you need, and have different interest costs to compare.

Alternatively, give the mortgage brokers team a call on 0330 304 3040, and we'll explain the various products available, and how much each one would cost, as well as the pros and cons.

Can I Get an Interest-Only Mortgage for a Large Property?

Yes, if you're looking to borrow a large amount, it is possible. However, few lenders can offer very high interest-only values, and you will need to meet all other lending criteria.

Below are indicative repayment values for an interest-only mortgage and a repayment mortgage on properties costing more than £1,000,000:

Mortgage value

Interest-only monthly cost

Repayment monthly cost

£1,000,000

£4,170

£5,848

£1,250,000

£5,212

£7,310

£1,500,000

£6,255

£8,772

£2,000,000

£8,339

£11,696

What Deposit Will I Need for a Large Interest-Only Home Loan?

The deposit will dictate the mortgage terms you are offered - with the more extensive the deposit, the better the rates available.

In some cases, a large mortgage might need to be split into a part and part mortgage, with some capital repayments and some interest-only.

What Fees Are Payable for an Interest-Only Mortgage Application?

All mortgages will carry fees and costs, and it is vital to be aware of those costs before going ahead with an application. Typical expenses include:

  • Lender arrangement fees.
  • Property valuation costs.
  • Stamp duty.
  • Legal charges.

What are the Eligibility Criteria for an Interest-Only Mortgage?

The criteria will vary between lenders, but will always consider:

  • Your repayment vehicle, and how stable the plans to pay back the interest-only mortgage. This might include selling the property, using savings, withdrawing a pension scheme lump sum, or cashing in investments, stock or shares.
  • Your credit rating - any adverse credit issues increase the risk profile of your application. In some cases, it is advisable to apply to a specialist bad credit lender.
  • Your age - some lenders have a maximum age cap, whereas others have no maximums at all. Revolution can recommend the best lenders to apply to if you're looking for an interest-only mortgage at or past retirement age.

How Do Affordability Checks Work on Interest-Only Mortgages?

Affordability assessments are designed to ensure you can afford the mortgage payments before a lender makes a formal offer to lend.

This assessment will consider:

  • Your income level - with some lenders imposing a minimum annual income threshold.
  • Your employment or type of work. Mainstream lenders are usually most comfortable with PAYE employment, whereas more specialist lenders are experienced with self-employed applicants.
  • The lender risk profile - some lenders offer up to four times your annual income and others as high as six times your salary.
  • The Loan to Value Ratio - the higher the deposit, the lower the risk and therefore, the lower the LTV being requested. Lenders will usually offer lower interest rates on less-risky mortgages.
  • Lending caps - some lenders will have a loan cap on a specific mortgage product, whereby they only accept applications within a maximum threshold.

Are There Secured Interest-Only Loans Instead of a Mortgage?

A secured loan is another type of mortgage, given that it is secured against your home, but is secondary in priority to the original mortgage lender.

You can apply for interest-only secured loans, and there is a range of options on the market.

Give us a call on 0330 304 3040 to learn more.

Lenders of interest-only secured loans are often able to be more flexible with the affordability assessments than they would be for a first-charge mortgage.

Can I Remortgage an Interest-Only Home Loan?

Indeed you can - provided you meet a minimum period, usually six months, you can remortgage to find a more competitive rate, or to take advantage of more advantageous terms.

You will have to pay the usual fees for the remortgage process.

Professional Advice on Interest-Only Mortgage Lending

For tailored advice and support on all aspects of interest-only mortgage borrowing, contact Revolution on 0330 304 3040 or drop us an email to [email protected].

Our team can help you compare all the costs and charges, and weigh up the pros and cons to make the best borrowing decisions for your circumstances.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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