WITH significant numbers of people coming off ultra-cheap 5-year fixed rates this year, mortgage brokers have reported growing demand, particularly among higher earning homeowners, for interest-only and ‘part-and-part’ mortgages.
Part-and-part mortgages are a middle ground offering lower monthly repayments than a standard capital repayment mortgage but leaving less capital to pay off when the mortgage ends than a pure interest-only mortgage.
But brokers warn that these products are not for everyone and a proper repayment plan needs to be in place to ensure “today’s payment relief doesn’t become tomorrow’s debt problem”.
Rate shock
Darryl Dhoffer, Founder at The Mortgage Geezer, a UK-wide broker, said: “Many high-value borrowers exiting cheap fixed rates are facing massive rate shocks.
“To protect cash flow on larger loans, I am seeing a major surge in Part-Interest, Part-Repayment — ‘part-and-part’ — mortgages paired with extended terms of 35 or 40 years.
“Instead of pure interest-only, this hybrid approach splits the debt, offering immediate monthly relief while still chipping away at the capital. Stretching the term lowers the capital repayment slice even further.
“However, for affluent clients, this isn’t distress but a liquidity play to keep mandatory costs low while allowing them to overpay via bonuses later.
“My advice would be to treat this as a temporary bridge. It increases total borrowing costs over time, so plan to shorten the term when rates ease.”
Richard Davidson, Mortgage Advisor at onlinemortgageadvisor.co.uk, said that, with rates far higher than back in 2021, his firm is also seeing more enquiries for interest-only mortgages.
But he warned “I would urge anyone tempted to switch to interest-only purely to dodge the payment jump to pause and think it through”.
Davidson continued: “Interest-only lowers the monthly cost because you stop repaying the actual loan, so the debt is still sitting there in full at the end of the term, and lenders will want to see a credible plan for how you clear it before they agree.
“For high earners with plenty of equity, it can actually be a smart strategy, freeing up cash to invest or offset elsewhere while the property does the heavy lifting, which is exactly why most lenders reserve it for that profile.
“For everyone else coming off a cheap fix, a better first move is usually to talk to a broker about extending the term or going part-repayment, part interest-only, which softens the blow without parking the whole balance.
“Treat interest-only as a bridge rather than a destination, and review it the moment your finances allow.”
Financial trap
Jamie Elvin, Director at Strive Mortgages, also said more clients are “asking the question” about pure interest-only mortgages but very few ultimately go on to switch to them.
He added: “More often, we find a better balance by extending the mortgage term or using part repayment, part interest-only. Interest-only should be a financial tool, not a financial trap. It can ease payment shock in the right circumstances, but you’re buying time, not reducing the debt.
“For higher-net-worth borrowers, it’s often used strategically rather than out of necessity, freeing up cash to invest elsewhere or improve liquidity while retaining flexibility.
“For everyone else, the priority should be making sure today’s payment relief doesn’t become tomorrow’s debt problem, with a clear plan to repay the capital.”
Wider picture
Tracey Dixon, Owner at Pure Mortgage and Protection, also reported a rise in enquiries about interest-only mortgage options.
She said: “I’m certainly seeing more enquiries about interest-only mortgages from clients coming to the end of ultra-low fixed rates, but in reality only a small proportion will actually be suitable for one.
“An interest-only mortgage can reduce monthly payments, but it shouldn’t be viewed as a quick fix for affordability. Borrowers need a credible repayment strategy and should fully understand that the mortgage balance will still need to be repaid at the end of the term.
“My advice is always to look at the wider picture rather than focusing solely on reducing the monthly payment. In many cases there are other options worth considering first, such as reviewing the mortgage term, securing a more suitable product or adjusting the borrowing amount.
“Interest-only can be an excellent solution for the right borrower, but it should be chosen because it supports their long-term financial plans, not simply because it offers the lowest monthly payment.”
Asis Tewari, Co-founder at smart mortgage app, nume, commented: “We’re seeing a rise in people moving a part of their mortgage to interest-only and then using an ISA as a way to pay down the loan principle.
“Cash flow stays the same, with the hope the returns on the ISA over five years grow faster than the mortgage rate. This approach gives people flexibility and accessible cash in case of emergencies.”
