The Council of Mortgage Lenders’ (CML) research of the interest-only market revealed that the number of outstanding mortgages extended under these terms had fallen by almost one third since 2012.
When the CML began collecting data on the interest-only market in 2012, the number of outstanding interest-only mortgages stood at around 3.2 million, with only basic information about these loans available. In 2015, this number had fallen to 1.7 million pure interest-only loans with a further 500,000 on a part-and-part basis.
Just a third of the decrease came from loans being paid off when the term of the mortgage had expired.
The majority of redemptions came from loans which were years and in some cases decades ahead of the scheduled maturity date. Some 29% of total redemptions came from loans that were not set to mature until at least 2028.
The CML said that in most cases, where a new mortgage was taken out it was done so on a repayment basis.
James Tatch, analytics manager at the CML, said: “Since [2012], the CML and our members have tackled this [interest-only] issue head-on, with lenders proactively contacting interest-only borrowers and exploring options where there may be difficulties in repaying the loan.”
He said the Financial Conduct Authority had repeatedly endorsed the industry’s approach, calling it ‘a prime example of a model demonstrating good conduct outcomes and putting customers first’.
Those loans which remain on interest-only have reduced in risk each year since the CML began tracking this market in 2012. Loan-to-values (LTV) have continued to fall year-on-year, which the trade body said could only partly be attributed to house price inflation.
Last year, average house prices increased by 5.5%, as measured by the Office of National Statistics, but the decline in LTVs of interest-only mortgages, said the CML, outpaced this rate of inflation.
In 2012, there were nearly 900,000 interest-only borrowers with an LTV ratio of over 75% which has now reduced to just over 300,000.
Tatch said: “With targeted interest-only contact strategies now a permanent feature of lenders’ back-book management, we see this positive story continuing. But it is vital that those borrowers still with interest-only mortgages engage with lenders at each point of contact, to ensure that any risks are identified and managed at the right stage.”
