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Interest-only mortgages fall by almost a half since 2012

Figures from UK Finance have revealed that the number of interest-only mortgages has nearly halved in the last six years, down by 46% since 2012.

Currently there are 1.7 million outstanding interest-only mortgages (including partial interest-only), with the total value of the interest-only mortgage book standing at £250 billion, down 37% in the last six years.

At the end of 2017 there were more than 1.2 million pure interest-only mortgages outstanding, a drop of 14.9% over the last year. Elsewhere, there were 429,000 partial interest-only homeowner mortgages outstanding at the end of 2017, up by 2.1% over the last 12 months.

The number of interest-only loans at higher (over 75%) loan-to-values slumped by 13.9% in 2017. Loans at these higher loan-to-value ratios now account for 13% of the total, in comparison to 16% in 2016 and 36% six years ago.

In separate UK Finance research, it was also revealed that of the one million interest-only loans set to mature by 2020 that were live at the end of 2012, there are now only approximately 200,000 that remain. There is evidence that lenders are seeing greater success in making contact with borrowers who are more reluctant to engage (although this is still a struggle), while the lion's share of borrowers who do engage have repayment plans in place.

“The number of outstanding interest-only loans has halved in the past six years, with a particularly steep decline in higher loan-to-value mortgages,” Jackie Bennett, director of mortgages at UK Finance, said. “Many borrowers continue to redeem ahead of schedule or switch to a repayment mortgage.”

However, she said plenty more work needs to be done over the coming years to make sure that those remaining borrowers who have so far been reluctant to engage have viable repayment plans in place.

“We continue to encourage all borrowers with interest-only mortgages to contact their lender as soon as possible, as the sooner they do so the more options will be available,” she explained.

“UK Finance will also be developing new best practice for lenders in this area, to reflect the changing regulatory landscape and help the industry engage successfully with more borrowers.”

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