Interest-only mortgages have not disappeared from the UK market in 2026, but they are subject to significantly more structured underwriting than during previous credit cycles. Following the affordability tightening seen between 2023 and 2025, driven by higher interest rates and regulatory emphasis on sustainability, lenders are now placing greater weight on repayment credibility, asset resilience, and long-term exit clarity.

Although the Bank of England base rate has stabilised relative to the volatility of earlier years, borrowing costs remain materially above the ultra-low-rate period that shaped much of the 2010s. In this environment, lenders are less inclined to rely on assumed capital appreciation as a repayment strategy. Instead, they require tangible, documented, and realistic exit vehicles.

The Financial Conduct Authority continues to emphasise responsible lending and appropriate risk management, particularly where repayment depends on investment performance or future asset sales. As a result, interest-only lending in 2026 is no longer assessed purely on income multiples and loan-to-value. It is evaluated through the lens of long-term repayment viability.

At Willow Private Finance, we frequently advise on complex interest-only structures for high-net-worth individuals, portfolio landlords, and asset-backed borrowers. As explored in High Net Worth Mortgages in 2025: What Lenders Look for Beyond Income, lender appetite in 2026 often depends more on balance sheet strength and exit clarity than headline earnings alone.

Understanding how lenders assess repayment vehicles is critical before pursuing an interest-only structure.

Market Context In 2026

Affordability models across the UK mortgage market remain more conservative than pre-2022 standards. Stress rates applied by lenders continue to factor in potential rate volatility, even where fixed-rate products are chosen.

This has reduced the number of borrowers who can qualify for high leverage on capital-and-interest terms.

Interest-only borrowing has therefore re-emerged as a strategic option for certain profiles,  but only where repayment risk is demonstrably manageable. Lenders are cautious about extending interest-only terms to borrowers without substantial assets, credible pension forecasts, or documented investment portfolios.

In 2026, underwriting committees are particularly focused on:

• Asset liquidity
• Market volatility exposure
• Pension access age alignment
• Realistic asset disposal timelines

The post-2025 tightening of affordability rules has not eliminated interest-only mortgages, but it has concentrated them among financially stronger applicants with clear, evidenced exit plans.

How Interest-Only Mortgages Work

An interest-only mortgage requires the borrower to pay only the interest due each month, with the capital balance remaining unchanged throughout the term. The full loan amount must be repaid at the end of the mortgage period.

This structure reduces monthly payments compared to a capital-and-interest mortgage, but it transfers repayment responsibility to a separate vehicle. In 2026, lenders expect that vehicle to be credible, measurable, and documented at application stage.

Common repayment vehicles include:

• Sale of the mortgaged property
• Sale of alternative property assets
• Investment portfolios (ISAs, general investment accounts)
• Pension lump sums
• Business sale proceeds
• Cash savings accumulation

Lenders no longer rely on assumed future price growth of the mortgaged property alone. Where property sale is the intended strategy, they assess loan-to-value conservatively to protect against market fluctuation.

The fundamental underwriting question is not whether the borrower can service the interest — it is whether the capital will be realistically repaid at maturity.

What Lenders Are Looking For

In 2026, lenders assess interest-only cases across three primary dimensions: serviceability, asset sufficiency, and exit realism.

First, income must comfortably support the interest payments under stressed conditions. Many lenders apply enhanced stress testing where loan-to-value exceeds certain thresholds.

Second, repayment vehicle sufficiency. Where investments are proposed, lenders often apply haircuts to current portfolio values to account for volatility. For example, a £1 million equity portfolio may only be considered at a discounted value for underwriting purposes.

Third, accessibility and timing. Pension-based repayment plans are common among older borrowers, but lenders will assess whether the borrower’s age at maturity aligns with pension access rules. Evidence of pension statements and projected lump sums is typically required.

Asset-backed strategies involving sale of secondary property are also evaluated carefully. Lenders consider whether the asset is unencumbered, marketable, and realistically disposable within the mortgage term.

In 2026, vague statements such as “I will downsize later” are insufficient. Documented evidence is essential.

Common Challenges And Misconceptions

A common misconception is that high income alone justifies interest-only borrowing. In practice, lenders prioritise asset-backed repayment strength over earnings capacity.

Another misunderstanding concerns pension reliance. Not all pension forecasts are treated equally. Defined contribution schemes are subject to market risk, and lenders may apply conservative assumptions to projected values.

There is also confusion regarding property sale as a universal exit. Where loan-to-value is high, lenders may question whether sufficient equity would remain after market fluctuations and transaction costs.

Finally, some borrowers assume that switching to capital repayment later will always be possible. In a tighter affordability environment, this cannot be guaranteed. Exit planning must be credible from inception.

Where Most Borrowers Inadvertently Go Wrong in 2026

The most frequent error is presenting an interest-only case without quantified, evidenced repayment documentation. Lenders require clarity at application stage, not retrospective explanation.

Borrowers also underestimate how asset volatility influences underwriting. Submitting a portfolio statement without acknowledging concentration risk or liquidity constraints can weaken presentation.

This is where Willow Private Finance adds the most value: intervening before another application is made and controlling how the case is presented to market.

Structuring Strategies That Improve Approval Odds

Lower loan-to-value levels materially improve lender comfort where repayment depends on asset sale.

Conservative leverage provides a margin of safety against valuation shifts.

Diversified repayment vehicles can strengthen an application. For example, combining pension lump sum access with investment portfolio evidence may reduce reliance on a single asset class.

Clear documentation — including up-to-date investment valuations, pension projections, accountant confirmations for business sale strategies, and evidence of unencumbered property — enhances underwriting clarity.

In some cases, part-and-part structures (part interest-only, part capital repayment) may balance affordability with risk management.

Each structure must be aligned with lender criteria rather than assumed flexibility.

Hypothetical Scenario

A 52-year-old borrower seeks a £1.5 million interest-only mortgage at 60% loan-to-value. The proposed repayment vehicle is a pension lump sum projected at £1.2 million at age 67, supplemented by a £400,000 investment portfolio.

The lender reviews pension statements, applies conservative growth assumptions, and discounts the equity portfolio value to reflect volatility. The combined adjusted asset value exceeds the loan amount, and the term aligns with pension access age.

In this scenario, underwriting may proceed. However, if the loan were structured at 75% loan-to-value with the same asset base, appetite could reduce materially.

This example is illustrative only and not representative of a specific client case.

Outlook For 2026 And Beyond

Interest-only lending in 2026 is concentrated among financially robust borrowers with measurable asset backing.

Regulatory emphasis on responsible lending is unlikely to ease, and lenders are expected to maintain conservative repayment assessment standards.

As property price growth remains regionally uneven and market volatility persists, repayment vehicle credibility will remain central to underwriting decisions. Borrowers considering interest-only structures should prioritise documented exit clarity over monthly payment optimisation alone.

How Willow Private Finance Can Help

Willow Private Finance is an independent, whole-of-market intermediary advising on complex mortgage structures across the UK and internationally.

For interest-only cases, we assess lender repayment criteria, asset valuation sensitivity, pension alignment, and leverage thresholds before an application is submitted. Our role is to ensure repayment vehicles are presented in a manner consistent with current underwriting standards and 2026 affordability expectations.

Frequently Asked Questions

Who Qualifies For An Interest-Only Mortgage In 2026?
In 2026, interest-only mortgages are typically available to borrowers who can demonstrate both strong serviceability and a clearly evidenced repayment strategy. This often includes high-net-worth individuals, senior professionals, business owners, and experienced property investors with substantial asset bases.

Many lenders apply minimum income thresholds for residential interest-only borrowing, particularly at higher loan-to-value levels. In addition, maximum loan-to-value caps are usually lower than for capital-and-interest mortgages. The borrower must also present a credible, documented repayment vehicle that meets lender criteria, rather than relying on future assumptions or informal plans.

Qualification is therefore assessed across income strength, asset sufficiency, and structural credibility of the exit plan.

Can I Use My Pension As A Repayment Vehicle?
Yes, many lenders will consider pensions as a repayment vehicle, but only where sufficient documentary evidence is provided. Applicants are usually required to supply up-to-date pension statements, projected maturity values, and confirmation of the age at which lump sums can be accessed.

Lenders will assess whether the mortgage term aligns with the borrower’s pension access age and may apply conservative growth assumptions to projected values. Defined contribution schemes are typically assessed differently from defined benefit pensions, with the former subject to market risk.

Where pension-based repayment is proposed, underwriters focus on whether the projected lump sum, after potential market fluctuations and tax considerations, would realistically cover the outstanding capital balance.

Do Lenders Accept Investment Portfolios As Repayment Plans?
Yes, investment portfolios, including ISAs, general investment accounts, and managed portfolios, are commonly used as repayment vehicles in 2026. However, lenders rarely accept headline values at face value.

Underwriters often apply haircuts to reflect market volatility and liquidity risk. For example, a diversified portfolio may be assessed at a discounted value, while concentrated or higher-risk holdings may attract more significant adjustments.

Lenders also consider accessibility. Assets that are illiquid, subject to lock-in periods, or dependent on complex disposal processes may be treated cautiously. Clear, up-to-date valuation evidence and statements are essential to support this type of repayment strategy.

Is Selling The Property Always Accepted As An Exit Strategy?
Selling the mortgaged property itself can be an acceptable repayment strategy, particularly at lower loan-to-value ratios where there is substantial equity. However, lenders do not assume future price growth and instead assess current equity margins conservatively.

If the loan-to-value is high, or if the property type is considered niche or less liquid, underwriters may question whether sufficient equity would remain after market fluctuations and transaction costs. In some cases, lenders may require additional supporting assets rather than relying solely on future sale proceeds.

The viability of property sale as an exit strategy therefore depends on leverage, property type, location, and overall market conditions at the time of application.

What Is A Part-And-Part Mortgage?
A part-and-part mortgage combines two elements: a portion of the loan is repaid on a capital-and-interest basis, while the remaining balance is structured as interest-only. This approach reduces the capital outstanding gradually while maintaining lower monthly payments compared to full repayment.

In 2026, part-and-part structures are sometimes used where the borrower has a partial repayment vehicle but not one sufficient to cover the entire loan. Lenders will assess the interest-only portion separately, requiring documented evidence of how that balance will be cleared at the end of the term.

This structure can provide a balance between affordability and risk management, but it must still meet standard underwriting criteria for both elements of the loan.

📞 Want Help Structuring an Interest-Only Mortgage in 2026?

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

We’ll help you assess repayment strategy viability, lender criteria alignment, and the most appropriate structure for today’s lending market.