Number of outstanding interest-only mortgages ‘has more than halved since 2012’

The number of interest-only mortgages outstanding has more than halved in the past seven years, according to a trade association representing lenders.

In 2012 there were 2.5 million mortgages which were purely interest-only – but by 2018 the figure had fallen to 1.23 million, UK Finance said.

These mortgages allow people to only pay off the amount they have borrowed when the deal comes to an end.

They just pay the interest charged, rather than whittling down the loan itself.

Concerns were raised by regulators that some people could be sitting on an interest-only mortgage time bomb – as they had no realistic plan in place for how they would eventually pay the capital back.

In the worst cases, it was feared that some could lose their home.

In recent years, lenders have become stricter about lending on an interest-only basis and have been working to help borrowers find alternatives.

Interest-only loans have been set to mature in a series of peaks.

UK Finance said the latest figures follow an industry-wide commitment by regulated mortgage lenders to contact all interest-only borrowers with loans scheduled to mature before the end of 2020, to ensure they are on track to repay their loans or work out an alternative solution.

It has also produced a leaflet to raise awareness of the potential options available to interest-only borrowers, including switching to a full repayment mortgage or paying back their loan in full ahead of schedule.

The figures also show that there were 360,000 partial interest-only home owner mortgages outstanding at the end of 2018 – down from 705,000 in 2012.

The number of interest-only loans at higher loan-to-values (LTVs) of more than 75% has also fallen, UK Finance said.

Loans at these higher LTVs now make up 13.4% of the total, compared with 36% in 2012.

Jackie Bennett, director of mortgages at UK Finance said: “The number of outstanding interest-only mortgages has more than halved in the past seven years, and it is particularly encouraging to see the continuing rapid contraction in the numbers that were set to end on or before 2020, the first anticipated peak in maturities.

“As we approach 2020, this reduction in numbers represents an industry success story for regulated providers, as lenders continue to improve their contact programmes with borrowers and ensure plans to repay are on track.

“However, it is as important as ever that we keep up the momentum through to 2020 and beyond, to make sure all borrowers are aware of the need to repay and have viable means to do so.

“For the small minority whose repayment plans do not appear sufficient, it is also very positive news that most interest-only loans now have strong equity stakes.

“This greater equity means borrowers are likely to access more alternative repayment options should they need them.

“We would encourage interest-only customers to follow the advice in our consumer leaflet and contact their lender as soon as possible, to discuss the potential solutions available to them.”

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