Between now and 2020 around 1.3m interest-only mortgages are expected to mature, but at present 1.04m have no final payment plan of any kind. This is around 10% of total outstanding mortgages in the UK.
The study also found that the bulk of the problem mortgages pre-date the financial crisis. In the past decade 1.28m of these mortgages were taken out, 14% of the total number of house purchase loans.
At the start of 2008 the interest-only market constituted 30% of all new house purchase loans but has rapidly fallen away, counting for around 10% of the market in the last 12 months.
Mark Blackwell, managing director of xit2, commented: “The interest-only problem is a big structural issue for lenders.
“Lenders have acknowledged the severity of the problem over the last twelve months, and tightened up lending criteria on their interest-only mortgages. But they’re just closing the door after the horse has bolted.
“The damage was done in the mid-2000s, when a third of new mortgages were interest-only. Interest-only lending has fallen sharply recently, but the outstanding balances are still very high thanks to the glut of lending prior to 2008.
“Identifying struggling borrowers is the hard bit. Lenders need help with it. Lots of interest-only lending prior to the financial crisis was done via specialist markets: sub-prime, self-certified and buy-to-let. It has left a challenging legacy of high-LTV interest-only loans with no repayment vehicle, and, just as worryingly, a lack of data about the customer.
“Lenders need to assess the problem quickly and act decisively. The Mortgage Market Review made plenty of noise about interest-only, but as yet no one in the mortgage market has put forward a credible solution. Our ability to collate and distribute data can help lenders identify struggling customers and formulate an appropriate repayment plan.”
