An interest-only mortgage allows the borrower to pay just the interest on the loan each month, without repaying the capital until the end of the mortgage term. It differs from a repayment mortgage, where both capital and interest are paid monthly.

The appeal? Lower monthly payments and cash flow flexibility. But there's a catch: you need a clear plan to repay the loan at term-end.

Who Uses Interest-Only Mortgages in 2025?

These are no longer limited to buy-to-let investors. We’re seeing a growing number of:

• High-net-worth individuals using interest-only to manage liquidity
• Property developers refinancing bridging loans or rolling into development exit finance
• Later life borrowers using downsizing or investment portfolios as a repayment strategy
• Professionals expecting bonuses or liquidity events (e.g., business exits)

Key Benefits in 2025

✅ Improved Cash Flow
Interest-only frees up income for other investments, expenses, or working capital.

✅ Flexibility on Timing
Ideal if you expect to sell the property or another asset in the next 2–5 years.

✅ Tax Efficiency for Investors
In SPV structures, interest is often fully deductible, reducing corporation tax.

✅ Better Leverage for Growth
Can help portfolio landlords gear up for further purchases, especially in a rising market.

But It’s Not Right for Everyone…

There are risks and drawbacks that need careful planning:

❌ No Equity Built Through Repayments
Unless the property appreciates or you overpay, you’re not reducing the loan balance.

❌ End-of-Term Risk
If your repayment strategy fails (e.g., sale falls through or investments underperform), refinancing may be harder—especially with age or market changes.

❌ Stricter Affordability Criteria
Some lenders stress-test interest-only repayments more tightly than full repayment products.

What Do Lenders Expect in 2025?

You’ll need to demonstrate:

• A credible repayment vehicle (sale of property, investments, pension lump sum, etc.)
• Strong income or asset profile—especially if borrowing into retirement
• Property value stability or growth potential
• Lower loan-to-value ratios (most lenders cap at 50–75% depending on circumstances)

Popular Uses We’re Seeing at Willow

• Equity Release for Investment: HNW clients refinancing with interest-only to access equity for other opportunities
• Development Exit Strategy: Using interest-only to exit a bridge and hold the asset until the optimal sale date
• Inheritance Planning: Families using interest-only borrowing against an estate asset to manage IHT liabilities
• London Professionals: High earners using interest-only with bonuses or vesting shares earmarked for repayment

Exit Strategy Matters Most

An interest-only mortgage isn’t just about affordability—it’s about strategy.

Before applying, ask yourself:

• When will I repay the capital?
• Will my property likely retain or increase in value?
• Do I have other assets or liquidity available?
• Will I still be eligible to refinance at the end of the term?

Final Thoughts

In the right hands, interest-only can be a powerful tool—but it requires planning, discipline, and the right lender.

At Willow Private Finance, we help clients structure interest-only deals that align with their long-term goals—whether it’s wealth growth, tax optimisation, or succession planning.

📞 Want Help Navigating Today’s Market?

Book a free strategy call with one of our mortgage specialists.

We’ll help you find the smartest way forward—whatever rates do next.