The CML said its findings show the progress that has been by lenders to ensure borrowers with interest-only mortgages have plans for how they will repay at maturity.
Around 1.9m pure interest-only mortgages were outstanding as of the end of 2014, with around 460,000 part interest-only mortgages still on lenders’ back books. This means there are 300,000 fewer pure interest-only mortgages outstanding compared to a year earlier, while part interest-only mortgages dropped by 160,000.
The research suggests that many borrowers could be taking action well before repayment problems arise, with a third of the reduction in outstanding mortgages attributed to full redemption of loans not set to mature until at least 2028. The CML said this could also point to a large number of customers that were successfully remortgaging onto full repayment terms, without falling foul of affordability rules brought about by the Mortgage Market Review (MMR). Natural attrition of loans also contributed to a quarter of the reduction.
Of loans that have matured, the research found few have failed to repay, with under 16,000 outstanding loans which have matured but not yet repaid or restructured.
However, lenders have noted a challenge in communicating with borrowers when trying to help them plan for their mortgage’s repayment at maturity. During 2014, lenders began to contact customers whose mortgages were due to mature by 2020, including some borrowers with longer maturity dates.
While 27% of those with maturity dates between 2021 and 2028 responded to their lenders, just 2% of customers with 13 or more years to term-end did the same.
The CML urged lenders to continue to engage with interest-only customers and discuss their plans for repayment, adding it would to aim to help lenders create successful communication strategies.
CML director general Paul Smee, said: “The continued decline in interest-only mortgages outstanding confirms our perception that many borrowers are firmly on top of this issue, and successfully making plans to manage their loans to ensure they are not faced with a payment shortfall at maturity.
“But as an industry we clearly still have work to do to trigger more borrowers to respond to their lenders’ attempts to understand their intentions and help them plan ahead for the maturity of their loans.”
