Recent figures show that interest-only mortgages are making a significant return — not just in the buy-to-let sector, but among private homeowners. According to UK Finance, more than 61,000 borrowers switched from repayment to interest-only mortgages in 2023, up from just 2,000 the previous year.
At Connaught Law, we’ve seen increased interest from clients looking to understand the legal and contractual implications of switching to or entering into interest-only mortgage agreements. While we do not provide financial advice, we are well-placed to assist with the legal aspects of property transactions, lending arrangements, and long-term estate planning.
What Is an Interest-Only Mortgage?
With an interest-only mortgage, borrowers pay just the interest each month and do not reduce the capital owed. The full loan amount becomes repayable at the end of the term. This structure can offer lower monthly payments, but it carries a significant repayment obligation — typically settled through sale, inheritance, or other means.
Why Are Borrowers Opting for Interest-Only?
For many homeowners, this option allows greater flexibility in monthly budgeting, particularly during periods of high interest rates. While this is often part of broader personal financial planning, borrowers should ensure they fully understand the terms of the loan, their repayment obligations, and the long-term implications.
Legal Issues to Consider
If you’re thinking of switching to or securing an interest-only mortgage, you should seek advice on the legal issues involved. These may include:
- Clarity on repayment obligations under the mortgage deed or agreement.
- Implications for joint ownership or family trusts, especially where the loan forms part of inheritance or estate planning.
- Ensuring that your solicitor reviews the terms of any remortgage or change to your lending arrangement to protect your legal position.
- Exit strategies and redemption clauses, especially in the event of sale or refinance.
Our Role as Solicitors
Connaught Law is regulated by the Solicitors Regulation Authority (SRA). In line with the SRA’s Code of Conduct, we do not provide regulated financial advice. However, we routinely act for clients on the legal aspects of:
- Mortgage and remortgage transactions
- Transfers of equity involving existing loans
- Leasehold and freehold purchases involving interest-only lending
- Legal structuring of ownership for long-term planning
We work closely with clients’ financial advisers, brokers, and accountants to ensure that their lending arrangements are legally sound and aligned with their personal and commercial objectives.
Speak to Us
If you’re exploring or reviewing an interest-only mortgage, it’s essential to seek legal advice before making any binding decisions. Our team at Connaught Law is here to support you through every stage of the process — from reviewing mortgage documents to ensuring the legal title and structure are suitable for your needs.
Contact Connaught Law today to discuss how we can assist with the legal aspects of your mortgage and property arrangements.
