Interest Only: Minimum Equity Requirement
Detailed guide to interest-only mortgage equity requirements, including minimum equity thresholds (typically 25-50%), lender criteria by age (under 55, 55-70, 70+), acceptable repayment vehicles (savings, pensions, investments), and remortgage strategies for aging borrowers.
Interest-Only Mortgages: Minimum Equity Requirements
Interest-only mortgages allow you to pay only the interest each month, with the capital repaid at term end. Lenders impose strict minimum equity requirements to mitigate risk, particularly for older borrowers.
Why Equity Requirements Exist
Lender Concerns:
- Repayment Risk: Will borrower actually repay capital?
- Age Factor: Older borrowers may struggle to repay in later life
- Property Depreciation: Market downturns could erode equity
- Affordability: Transition to repayment mortgage may be unaffordable
Minimum Equity by Lender Type and Age
| Borrower Age | High Street Banks | Building Societies | Specialist Lenders | Typical Repayment Vehicle |
|---|---|---|---|---|
| Under 55 | 25-40% equity | 30-40% equity | 25-35% equity | ISA, pension, investments |
| 55-65 | 35-50% equity | 40-50% equity | 30-40% equity | Pension drawdown, savings |
| 65-75 | 40-60% equity | 50-60% equity | 35-50% equity | Pension, downsizing plan |
| 75+ | 50%+ equity (RIO) | 50-60% equity | 40-60% equity | Property sale (RIO) |
RIO (Retirement Interest-Only): No repayment vehicle needed - capital repaid on death/sale
Acceptable Repayment Vehicles
Lender-Accepted Strategies:
- Pension Pot: Min £100k-£200k fund value (age-dependent)
- ISA/Savings: Must be sufficient to repay in full
- Investments: Stocks, bonds (min 30% more than loan due to volatility risk)
- Property Sale: Credible downsizing plan with evidence
- Endowment: If adequate projected value
Real-World Examples
Professional Aged 45 with £400k Mortgage David wanted interest-only on his £800k home. With £150k pension pot + £80k ISA (total £230k repayment vehicle, 58% of loan), his lender required 40% equity minimum. He exceeded this (50% equity), securing interest-only at 4.8%.
Couple Aged 62 Remortgaging Emma and Peter had £180k outstanding on £450k home (60% equity). Their building society required 50% equity minimum for their age group. With £220k pension fund as repayment vehicle, they qualified for interest-only at 5.1%.
Retiree Aged 70 Using RIO Margaret, 70, had £120k outstanding on £300k bungalow (60% equity). Standard interest-only unavailable due to age. She switched to RIO (Retirement Interest-Only) at 50% equity minimum, paying 5.8% - no repayment vehicle needed.
Equity Requirements by Loan Size
Larger Loans = Higher Equity Needed:
- £100k-£250k loan: 25-35% equity typically acceptable (under 55s)
- £250k-£500k loan: 30-40% equity required
- £500k-£1m loan: 35-50% equity expected
- £1m+ loan: 40-60% equity minimum (private banks)
Transition Strategies
As You Age, Options Reduce:
Age 55-60: Last chance for standard interest-only renewal. Most lenders won't renew beyond 60-65.
Age 60-65: Consider:
- Switching to repayment (if affordable)
- Part-repayment (reduce loan size)
- RIO mortgages (if equity sufficient)
- Downsizing (release capital)
Age 65+: RIO mortgages often the only option.
RIO (Retirement Interest-Only) Criteria
What is RIO?
- Pay interest only until death or property sale
- No repayment vehicle needed
- Capital repaid from estate
Minimum Requirements:
- Age: Typically 55+ (some lenders 60+)
- Equity: 50-60% minimum
- Income: Must afford interest payments from pension/retirement income
- Property: Minimum value £70k-£100k
Expert Tips
- Plan Early: Don't wait until maturity to consider repayment
- Overestimate Equity Need: Aim for 5-10% above minimum for flexibility
- Diversify Repayment Vehicles: Pension + ISA stronger than single vehicle
- Consider RIO at 60+: Often better than struggling with repayment mortgage
- Review Every 5 Years: Ensure repayment vehicle on track
Common Mistakes
Mistake 1: Underestimating Equity Needed Assuming 25% equity sufficient for all ages/loan sizes.
Mistake 2: Inadequate Repayment Vehicle Pension pot only 80% of loan value - lenders want 100%+.
Mistake 3: No Plan B Relying solely on property sale without downsizing evidence.
Frequently Asked Questions
Q: Can I get interest-only with only 25% equity? A: Only if under 55 with strong repayment vehicle. Most lenders want 30-40%+.
Q: What equity do I need at age 60? A: Typically 40-50% for standard interest-only, 50-60% for RIO.
Q: Can I use my main residence as repayment vehicle? A: Yes, if you have credible downsizing plan with evidence of smaller property availability.
Q: What if my repayment vehicle falls short? A: Make capital repayments now, switch to repayment mortgage, or accept higher equity requirement.
How We Can Help
We specialise in interest-only and RIO mortgages:
- Access to 40+ interest-only lenders with varied equity requirements
- RIO mortgage expertise for over-55s
- Repayment vehicle assessment to maximize borrowing
- Fee-free consultations
Next Steps
- Calculate your current equity: Property value minus mortgage
- Assess repayment vehicles: Total pension, ISA, investments
- Consider your age: What requirements apply?
- Contact us: We'll find lenders matching your situation
Need interest-only with minimum equity? Our specialists secure competitive rates for borrowers with strong equity positions.