Borrowers warned to go in "eyes-wide open" on Interest Only mortgages

BORROWERS need to go in “eyes wide open” as the country's largest mutual, Nationwide, increases what it will lend on an Interest Only basis to 75% loan-to-value (LTV) — or 85% LTV on a part-Interest Only, part-repayment basis — brokers have warned.

Britain's largest mutual is also now offering Interest Only to first-time buyers and accepting new repayment methods, including the use of pension funds, savings and investments.

Not everyone will be able to access the loan. Applicants will need a minimum eligible income of £75,000 for sole applications and £100,000 for joint cases, unless one applicant earns at least £75,000.

The maximum loan amount available through Interest Only is £5 million, with the maximum term increased to 40 years (or retirement, if sooner), from the current 25 years.

Carlo Pileggi, Nationwide’s Head of Mortgage Products, said: “We are delighted to be able to expand and enhance our Interest Only offering. Interest Only can be a great option for customers who have a suitable repayment vehicle and want the flexibility provided by lower monthly payments.  

“These changes, along with robust criteria, mean we will be able to increase the support we can provide borrowers looking for more flexibility, while ensuring Nationwide continues to lend responsibly."

Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, welcomed the fact that the products is only available through advisers: "It's important that some mortgages, such as this latest product from the Nationwide, are intermediary-only, as this ensures potential borrowers, especially first-time buyers, receive independent advice.

"Interest-only loans come with some financial health risks and borrowers need to go in eyes-wide open.

"As a lender, Nationwide continues to innovate and develop options for most borrowers, but in this instance it rightly ensures that they are not available direct but instead through mortgage brokers only.

“This mortgage could certainly appeal to borrowers who will look to downsize in the future but want to benefit from a larger or more expensive property now. 

"However, the ins-and-outs of interest-only mortgages need to be fully explained by an independent broker as they do come with risks.”

Andrew Montlake, CEO at London-based Coreco, was also positive: “Opening interest only to first-time buyers, while maintaining clear income thresholds of £75,000 sole or £100,000 joint, and keeping the proposition exclusively available via intermediaries, means customers will access the professional advice that is crucial, especially in the initial stages of their home-buying journey.

"These are thoughtful, positive changes that support brokers and broaden choice for borrowers in a responsible way.”

However, Ken James, Director at London-based Contractor Mortgage Services, was less impressed: "Nationwide have revamped their interest-only mortgages criteria, but only for borrowers earning above a set income level. In simple terms: those who already have the means to pay more get the option to pay less each month.

"Interest-only can offer real breathing room during the cost-of-living squeeze. Yet the very people who could benefit most often don’t qualify, while higher earners are given greater flexibility and lower payments.

"Lenders say it’s about reducing risk and ensuring borrowers can repay the capital later. But the result is a system where financial comfort is rewarded, and those under pressure get fewer choices.

“As living costs rise, this decision underscores a bigger fairness question in the mortgage market: Who gets help, and who gets left out?”

Emma Jones, Managing Director at Runcorn-based Whenthebanksaysno.co.uk, said 2025 has been a year of innovation among lenders. 

She continued: "We're seeing lots of progressive thinking to open the property market up in new ways and Nationwide's Interest Only offering is the latest example of that.

“It's encouraging that it is only available on an advised basis as this kind of borrowing does come with risks and borrowers need to fully understand what they are dealing with.”

Ranald Mitchell, Director at Norwich-based Charwin Mortgages, described the move as a “major step forward”.

He continued: "This gives borrowers valuable flexibility at a time when monthly costs are under real pressure. While Interest Only lending still comes with tight qualifying criteria, it’s a practical option that can help many achieve their property ambitions more affordably, particularly in the early, most expensive years of homeownership.

"This signals a clear shift in lender appetite. The market is now fighting for share, and as rate reductions can only go so far, we’re seeing other levers being pulled. 

“Higher loan to value ratios, stretched loan-to-income multiples and greater credit forgiveness all play a part in this market and we’ve seen movement on all fronts. Expect other lenders to follow suit.”

David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth, added: "Nationwide should be lauded for widening criteria and this latest move is perfect for borrowers who like low monthly bills and don’t mind leaving equity-building for later.

“Borrowers should consult a broker to get impartial advice on full repayment versus interest only and the long-term financial implications.”