For some higher earners and high net worth borrowers, an interest-only mortgage can offer a different way of structuring large mortgage borrowing. Instead of repaying part of the capital every month, your monthly payments cover the interest charged on the mortgage. The original capital balance therefore remains outstanding and must be repaid separately at the end of the term.
But interest-only mortgages aren’t available simply because someone has a high salary or substantial assets. Mortgage lenders generally need to see a credible repayment strategy showing how the capital will ultimately be repaid, and individual lenders can take very different approaches to the assets, income and property values they are prepared to consider.
In this FAQ blog, we’ll explain how interest-only mortgages for high net worth borrowers work, what repayment strategies lenders may consider and why interest-only can sometimes be relevant when arranging a larger mortgage.
Quick Answer
Yes, high net worth borrowers may be able to get an interest-only mortgage in the UK, subject to lender criteria and an acceptable repayment strategy.
Interest-only borrowing may potentially be relevant where a client has:
- A high income
- Significant investments
- Substantial equity
- Other property assets
- A large mortgage requirement
- Variable bonuses or other remuneration
- A suitable strategy for repaying the mortgage capital
However, the lender must still be satisfied that the mortgage is affordable and that the proposed repayment strategy has a realistic prospect of repaying the capital. Being wealthy does not remove the need for a repayment strategy.
Who Is This Guide For?
This guide may be particularly useful if you:
- Are a higher earner or high net worth borrower
- Need a mortgage of £500,000, £1 million or more
- Have significant investments or other assets
- Are buying a high-value property
- Receive bonuses, commission or investment income
- Want to retain capital rather than placing a larger deposit into a property
- Are considering interest-only or part-and-part borrowing
- Want to understand how private banks and mainstream lenders may assess larger mortgages
What Is An Interest-Only Mortgage?
With a standard repayment mortgage, your monthly payments include both:
- Interest charged by the lender
- Part of the mortgage capital
If you keep up with the repayments, the mortgage should therefore reduce over the term.
With an interest-only mortgage, your regular mortgage payments generally cover only the interest. That means the original capital remains outstanding.
For example:
Mortgage: £1,000,000
If the entire mortgage is interest-only, the borrower would still owe approximately £1,000,000 at the end of the mortgage term, assuming no capital repayments or overpayments had been made. They therefore need a separate strategy to repay that capital.
Why Might A High Net Worth Borrower Choose Interest-Only?
The answer is not simply “because the monthly payments are lower”. For some higher earners, interest-only borrowing may be considered as part of a wider financial strategy. Someone might prefer to retain capital because they have money invested elsewhere.
Another borrower may receive substantial annual bonuses and prefer to make occasional capital repayments rather than committing to larger mandatory monthly repayments. Others may hold significant property or investment assets that form part of their long-term repayment strategy.
Interest-only can therefore provide cash-flow flexibility, but it also leaves the capital outstanding for longer. That makes the repayment strategy extremely important.
What Repayment Strategies Can Be Used For An Interest-Only Mortgage?
Mortgage lenders have different policies regarding acceptable repayment strategies.
Depending on the lender, these might potentially include:
- Investment portfolios
- Stocks and Shares ISAs
- Pensions
- Other properties
- Sale of another property
- Sale of the mortgaged property in appropriate circumstances
- Cash savings
- Other identifiable assets
The FCA requires lenders to have evidence of a clearly understood and credible repayment strategy with the potential to repay the capital and any relevant interest.
Can I Use Investments As My Repayment Strategy?
Potentially. This can be particularly relevant for high net worth borrowers.
Imagine someone has:
Mortgage: £800,000
Investment portfolio: £1.5 million
Instead of liquidating a substantial part of the portfolio to increase the property deposit, they may want to explore whether the investments can form part of an acceptable mortgage repayment strategy. Whether this works will depend on the lender.
Different lenders may apply different rules around:
- Minimum investment values
- Acceptable investment types
- Haircuts applied to asset values
- Liquidity
- Investment volatility
- Required surplus above the mortgage balance
A £1 million investment portfolio does not necessarily mean a lender will treat the full £1 million as available for repayment.
Do High Earners Automatically Qualify For Interest-Only?
No. A high salary can help with affordability, but income and repayment strategy are two different issues.
Imagine someone earns £300,000 a year and wants an £800,000 interest-only mortgage. The income may support the ongoing interest payments. But the lender still needs to understand how the £800,000 capital will eventually be repaid at the end of the term.
Someone could therefore have an extremely high income but still fail the lender’s interest-only criteria if they don’t have an acceptable repayment strategy.
Can I Use My Main Home As The Repayment Strategy?
Potentially, depending on the lender and circumstances.
The FCA’s rules allow lenders to consider the sale of the mortgaged property in some circumstances, provided they assess whether the property is likely to generate sufficient funds to repay the mortgage and leave the borrower with a credible housing solution afterwards. This is sometimes referred to as sale of property or downsizing as a repayment strategy.
However, lenders can impose their own:
- Minimum equity requirements
- Maximum LTVs
- Minimum property values
- Age requirements
The FCA’s current guidance expressly recognises that lenders may use controls such as maximum LTV limits and minimum equity requirements when managing interest-only mortgages.
What Is Part-And-Part Interest-Only?
An interest-only mortgage does not necessarily have to be entirely interest-only. Some borrowers may consider a part-and-part mortgage.
For example:
Total mortgage: £1,000,000
This could hypothetically be structured as:
£600,000 repayment
£400,000 interest-only
The borrower gradually repays the £600,000 element through their monthly payments while maintaining a separate strategy to repay the £400,000 interest-only balance. For some borrowers, this can provide a middle ground between full repayment and full interest-only borrowing. Whether this structure is available depends on the lender and the client’s circumstances.
Does Interest-Only Mean The Mortgage Is Cheaper?
Not necessarily. Interest-only usually reduces the required monthly payment because you’re not making contractual capital repayments. But that doesn’t automatically mean it costs less overall.
Because the mortgage balance remains outstanding, interest continues to be charged on a larger balance for longer. With a repayment mortgage, the capital gradually reduces. With interest-only, it doesn’t unless you make separate repayments. So interest-only should not be treated simply as a way of obtaining a cheaper mortgage.
Do I Need A Private Bank For An Interest-Only Mortgage?
Not necessarily. Mainstream mortgage lenders can offer interest-only mortgages to suitable borrowers.
However, private banks and specialist lenders may also become relevant for some high net-worth borrowers, particularly where the circumstances involve:
- Very large mortgage amounts
- Substantial investment assets
- Complex income
- International wealth
- Unusual property
- Wider banking requirements
The appropriate lender depends on the borrower’s complete financial profile.
Are Interest-Only Mortgages Easier if You Earn More?
Not necessarily easier, but higher earners may have more potential repayment strategies available.
For example, they may hold:
- Large investment portfolios
- Multiple properties
- Significant pension assets
- Cash
- Business interests
These assets can potentially make it easier to demonstrate how the capital could ultimately be repaid. However, lenders still apply their own criteria. The presence of substantial wealth does not guarantee mortgage approval.
What Happens If My Repayment Strategy Falls Short?
This is one of the biggest risks of interest-only borrowing. If you reach the end of the mortgage term and cannot repay the outstanding capital, you could face difficult choices.
These might include:
- Selling investments
- Selling the property
- Using savings
- Refinancing, if available
- Switching to another appropriate mortgage arrangement
The FCA requires lenders to have procedures for monitoring and managing interest-only mortgages, including reviewing repayment strategies in relevant cases. But ultimately, the borrower always remains responsible for repaying the mortgage capital.
Should I Choose Interest-Only Or Repayment?
Neither is automatically better. A repayment mortgage offers the certainty that the capital is gradually being reduced through your monthly mortgage payments. An interest-only mortgage may offer greater monthly cash-flow flexibility, but you remain responsible for repaying the full capital separately.
Oportfolio Insight
One misconception around high net worth mortgages is that a large asset base automatically makes interest-only borrowing straightforward. It doesn’t. The assets need to work within the lender’s criteria.
Consider two clients who each have £1 million of assets. One holds £1 million in easily identifiable liquid investments. The other has the same headline net worth, but most of it is tied up in a private business or assets that cannot easily be sold.
On paper, their wealth is identical. From a mortgage lender’s perspective, their repayment strategies may look very different. That’s why we believe an interest-only mortgage for a HNW borrower should start with three questions:
- What does the client own?
- How accessible are those assets?
- How exactly will the mortgage capital ultimately be repaid?
The monthly payment is only part of the calculation. For interest-only borrowing, affordability gets you into the mortgage. The repayment strategy gets you out of it.
Common Misconceptions About HNW Interest-Only Mortgages
“If I’m wealthy, I can automatically get interest-only.”
No. Lenders still have their own affordability, LTV and repayment-strategy requirements.
“I only need to afford the monthly interest.”
No. You also need a credible strategy for repaying the outstanding capital.
“My house will definitely increase enough in value to repay the mortgage.”
Future property growth should not simply be assumed. A lender considering sale of the property as a repayment strategy must assess whether it is credible.
“Interest-only is cheaper than repayment.”
Monthly payments may be lower, but that doesn’t necessarily mean the mortgage costs less overall.
“I need a private bank.”
Not necessarily. Mainstream lenders can also offer interest-only mortgages, subject to their criteria.
Key Takeaways
- High net worth borrowers can potentially obtain interest-only mortgages.
- A high salary or large asset base does not automatically guarantee interest-only borrowing.
- Lenders generally require a credible strategy for repaying the mortgage capital.
- Investments, property or other assets may potentially form part of a repayment strategy, depending on lender criteria.
- Interest-only monthly payments usually do not reduce the mortgage capital.
- Part-and-part mortgages can combine repayment and interest-only borrowing.
- Mainstream lenders as well as private banks may offer interest-only options.
- Keeping assets invested instead of reducing the mortgage introduces investment and financial risk.
- The lender may review whether the repayment strategy remains realistic during the mortgage term.
- Interest-only borrowing should be considered as part of the client’s wider financial position.
In Summary
Yes, high net worth borrowers may be able to get an interest-only mortgage in the UK. Interest-only can potentially provide flexibility for borrowers with substantial income, investments or other assets, particularly where they are arranging a larger mortgage. However, the borrower still needs to meet the lender’s affordability criteria and demonstrate a credible strategy for repaying the capital.
Need Advice On A High Net Worth Interest-Only Mortgage?
If you’re considering an interest-only mortgage for a high-value property, Oportfolio Mortgages can help you understand your options.
We regularly work with professionals, higher earners and high net-worth borrowers with larger mortgage requirements and more complex income or asset structures. Whether your repayment strategy involves investments, other property or wider assets, we’ll assess your circumstances and compare suitable lending options across the market.
Get in touch today for a no-obligation conversation with one of our experienced mortgage advisers.
