Best Interest-Only Mortgage Rates: 5-Year Fixed Deals in 2024
As mortgage interest rates fluctuate, interest-only mortgages with five-year fixed terms remain a popular option for homeowners and investors looking to maintain lower monthly payments. These deals provide financial predictability and security for a set period, which is appealing in uncertain markets. Here’s a guide to the best interest-only mortgage rates for five-year fixed deals in 2024, along with what you need to know before choosing one.
An interest-only mortgage allows borrowers to pay only the interest on the loan for a set period—usually up to five years. During this time, monthly payments are significantly lower compared to a repayment mortgage, where both interest and principal are repaid. However, the full loan amount (the capital) remains outstanding at the end of the mortgage term and must be repaid either through savings, selling the property, or refinancing.
Interest-only mortgages are particularly popular with buy-to-let investors, as they provide flexibility in managing rental income and property maintenance costs.
A five-year fixed-rate mortgage provides stability by locking in your interest rate for the term. This means that even if the Bank of England base rate rises, your mortgage payments will remain the same. This is particularly useful in volatile economic conditions, where fluctuating rates can make financial planning difficult.
The main benefits include:
However, the borrower must have a robust plan for repaying the loan at the end of the term, whether through savings, investments, or selling the property
.
Here are some of the best available rates for five-year fixed interest-only mortgages:
NatWest – 3.71% (60% LTV)
NatWest offers one of the most competitive five-year fixed interest-only rates at 3.71% for applicants with a 40% deposit (60% loan-to-value). The product comes with a £1,495 fee and is available for first-time buyers and those moving homes. However, it is only available through direct applications
.
Barclays – 4.31% (Up to 75% LTV)
Barclays has a five-year fixed interest-only mortgage at 4.31% for up to 75% LTV, with product fees around £999. This rate offers a higher LTV, making it a more accessible option for those with smaller deposits. It includes free valuations and overpayment options
.
Santander – 4.33% (75% LTV)
Santander also offers a 4.33% rate with a 75% LTV and a £999 product fee. This deal is available for remortgages as well as new purchases and provides some flexibility in overpayments
.
Repayment Strategy: Since you're not paying off the principal during the fixed term, you need a clear strategy for repaying the full loan when the term ends. Common strategies include selling the property, using savings or investments, or refinancing.
Eligibility Criteria: Interest-only mortgages are generally harder to qualify for compared to repayment mortgages. Lenders require a solid financial profile, a larger deposit (often 25-40%), and proof of a viable repayment plan. This is especially true for residential properties
.
Fees and Costs: When comparing mortgages, always consider the full cost, including arrangement fees, valuation fees, and potential early repayment charges (ERC). Lower interest rates can sometimes come with higher upfront fees.
Buy-to-Let Investors: Investors often favour interest-only mortgages because they can maximise rental income during the interest-only period, potentially reinvesting the profits or using them to maintain the property.
High Net-Worth Individuals: Homeowners who expect a lump sum at a later date (such as a bonus or inheritance) may find interest-only deals attractive, as they keep monthly payments low until the capital can be repaid.
Those Seeking Flexibility: If you have an irregular income or expect your financial situation to improve in the near future, an interest-only mortgage offers flexibility without committing to high monthly repayments right away.
In 2024, five-year fixed interest-only mortgages provide a balance of low monthly payments and fixed-rate security, appealing to investors and homeowners alike. With rates starting from 3.71% (NatWest), now may be an opportune time to lock in these deals, particularly if you have a clear repayment strategy. However, due to the complexity and long-term planning required for interest-only mortgages, working with a mortgage broker or financial advisor is highly recommended.
If you’re interested in exploring your options, Fraser Bond can provide expert advice on securing the best five-year fixed interest-only mortgage for your specific financial situation. Reach out to us today for tailored assistance.
