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Interest-only mortgages for first-time buyers

Find the best interest only mortgage deals with help from our expert fee free mortgage advisors.

An interest-only mortgage could be right for you if you’re a first-time buyer looking to get on the property ladder. With this type of mortgage, you can benefit from lower monthly repayments as you only pay the mortgage interest each month rather than the loan capital. However, you will need to repay the capital at the end of the mortgage term.

For advice on interest-only mortgages for first-time buyers, get in touch with our expert team, and we will discuss your options with you. If this mortgage type is right for you, we will compare mortgages on your behalf and find you a fantastic deal.

Are interest-only mortgages available for first-time buyers?

Interest-only mortgages are available but because of the lending risks involved with this type of mortgage, only a few lenders are willing to offer them. To be eligible, you will need to satisfy the lender that you have a plan in place (a repayment vehicle) to repay the loan capital at the end of the mortgage.

If you do meet the lender’s eligibility criteria, you will benefit from a mortgage with monthly repayments that are smaller than those on a standard repayment mortgage as you will only pay interest each month rather than loan capital. If you’re a first-time buyer looking to save money, this can be advantageous for you.

Is it possible for first-time buyers to get an interest-only mortgage?

It is possible to get an interest-only mortgage if you’re a first-time buyer but with very few mortgage providers lending these types of mortgages, it’s advisable to seek the services of a mortgage broker such as ourselves to help you access the lenders and deals that are available to you.

Our expert team can search the market on your behalf to find the best deals and we can also give you advice on repayment vehicles and what lenders are likely to accept. After taking these steps, we will match you with the right lender to improve your chances of getting a mortgage.

With our help, you can minimise any financial risks to yourself as we will make sure you only get a deal you can afford. We can also suggest other mortgage options to you if you think you will struggle to pay off the final lump sum at the end of your mortgage.

Contact us about a mortgage online if you need further information about these types of mortgages and related information on how to get a loan with the lowest interest rates.

What is the interest-only mortgage application process for first-time buyers?

The following steps are advised before you make the application.

The sooner you get your paperwork together the better as this will speed up the application process. You will do much to impress your mortgage lender too if you have everything in place to make your application. The paperwork that is needed are the documents that prove your ID and your income and expenditure.

  • Proof of ID can include a current passport or driver’s licence, a recent utility bill, and bank statements that are dated within the last 3 months.

  • Proof of finances can include payslips if you’re a PAYE earner or tax returns if you’re self-employed, recent bank statements, and evidence of additional sources of income.

You will also need evidence of your repayment vehicle to satisfy the lender of your ability to repay your final mortgage debt.

You improve your chances of getting a mortgage approved if you have a good credit score so it’s advisable to check your credit file with one of the main credit agencies. If your credit score is low, perhaps because of financial issues you have experienced in the past or because there is a mistake on your credit report, you should take the necessary steps to improve your score before you make your application.

After taking the other steps, you will be in a position to approach a lender and make your application. However, we advise the services of our mortgage brokers. Not only will we match you with the right mortgage lender but we will put together a strong application to improve your mortgage chances.

What is the criteria to qualify for an interest-only mortgage as a first-time buyer?

As interest-only mortgages can be a risky proposition for some home buyers, lender criteria is sometimes quite strict. You will likely need a 25% deposit (or possibly more) and a personal income of at least £50,000.

You will need a good credit score too so as we mentioned, you should check your credit file to check your current rating before you make your application.

Your lender will also need evidence of how you’re going to pay the capital of your loan. So, if you’re applying for a mortgage that costs £250,000, for example, you will need to show how you can pay back this exact cost when your term ends.

When it comes to repayment vehicles, lenders have different requirements, but they can include:

  • Savings, such as an ISA

  • Money earned from investments

  • Pension fund withdrawals

  • Money gained from the sale of the property

You will also need to meet the lender’s income requirements before you are approved for a mortgage. Lenders typically have a minimum income threshold of £50,000 for single or joint borrowers but this can sometimes vary.

When just starting out on the property ladder, many home buyers are keen to keep costs low. As such, interest-only mortgages can be a good idea as mortgage payments consist of only the interest and not any of the loan capital.

With interest rates rising in late 2022, it has been our advisors that first time buyers who suit having an interest-only mortgage usually have control and understanding of their finances. It has been our observation that they will have significant investments and savings. Those who are choosing to have a mortgage on an interest-only basis will know it is a higher risk than a repayment mortgage however it makes financial sense for you.

It’s worth noting that home buyers can switch to a repayment mortgage further down the line if they get into a position where they can pay more each month. This could be the option for you if you think your financial situation will change for the better during the mortgage term.

Frequently Asked Questions

The following are just a few of the questions we are regularly asked but if you have other questions about interest-only mortgages, get in touch our with our team for the answers you are looking for.

Most lenders will let you borrow between 50-75% of the value of the property.

The maximum loan amount you will be eligible to borrow will depend on a number of factors, including the purpose of your mortgage (a residential or buy-to-let property), how much deposit you put down, and the multiple of your approximate annual income. With regards to the latter, most lenders set the amount you can borrow at 4.5 x income but there are some lenders that will offer higher income multiples, such as 6 x income to those who meet their eligibility criteria.

Our advisors find that mortgage affordability differs massively from person to person. To get an educated estimate of what you may be able to borrow, get in touch with our fee-free mortgage team.

If you’re looking to reduce the repayments on your mortgage, there are alternatives to interest-only mortgage deals These include:

Repayment mortgages over a longer term

The monthly repayments on a repayment basis are higher than those on interest-only mortgages. However, it is possible to keep costs down by extending the loan term. You could take out a mortgage for 35-40 years, for example, instead of the standard 25 years.

Please note: If you do take out a mortgage over a longer term, you don’t have to be stuck with it until the term ends. You can remortgage onto a cheaper mortgage deal if your circumstances change or you can make overpayments on your mortgage to reduce the term.

Part-and-part mortgages

Part-and-part mortgages are a hybrid of both interest-only and repayment mortgages. Each month you pay off the interest rate charge as well as a small portion of the capital, so at the end of your mortgage, you will have less debt to pay. These mortgages might sound like standard repayment mortgages but the monthly payments on them are more affordable.

To learn more about both of these mortgage options, get in touch with a member of our team.

Yes as this type of mortgage is the norm in the buy-to-let market. However, some lenders will require you to have some landlord experience before they grant you approval and you will need to have a good deposit and evidence of a steady income.

If you are interested in getting a mortgage for a buy-to-let investment rather than a residential property, we can match you with a lender that specialises in buy-to-let mortgages.

Getting an interest-only mortgage as a first-time buyer isn’t always easy and that is why we recommend our services to you. As we have access to the majority of mortgage lenders across the UK, we know which lenders are more likely to offer first-time home buyers an interest-only mortgage at the lowest interest rates.

Not only will we find you a deal with the lowest interest rates but we will complete your loan application too. As such, we can save you both time and money and increase the likelihood of your application being accepted.

Get in touch with an online mortgage advisor at YesCanDo today if you would like to know more about first-time buyer mortgages.

If you’re interested in this type of first-time buyer mortgage, you can increase your chances of being offered one by…

  • Improving your credit score

  • Raising a deposit of at least 25% of the market value of the property

  • Increasing your income

  • Putting together a plan for your repayment vehicle

  • Using the services of specialist mortgage brokers

Fee-Free Interest-Only Mortgage Advisors

We are dedicated to helping you get a fantastic mortgage deal so if you're a first-time buyer and in need of a mortgage with an affordable interest rate, get in touch with our team.

We have full-market access for the best mortgage rates & deals so no matter your circumstances, we will be able to find an affordable mortgage that is right for you. And as all of our services are FEE-FREE, you won't even need to pay us a penny.

For up-to-date information on the best mortgages available, get in touch with an online mortgage advisor at YesCanDo. We will provide mortgage advice that is tailored to your situation and will support you throughout every aspect of your mortgage journey.
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