The number of borrowers on the deals has fallen over the past six years, according to the trade body.
However, there are still significant numbers of borrowers coming to the end of their interest-only deal over the next year or so.
Overall there are 1.7m outstanding interest-only mortgages, including partial interest-only, a fall of 46% since 2012.
The total value of the interest-only mortgage book now stands at £250bn, down 37% over the same period.
Around one in ten interest-only loans are at loan to value of 75% or higher, down from more than one in three in 2012.
Engaging interest-only borrowers who are coming to the end of deals remains a challenge, UK Finance said.
But added that there is evidence that lenders are seeing greater success with contact, and of the borrowers who do engage most have repayment plans in place.
Still work to do
Jackie Bennett, director of mortgages at UK Finance, said: “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.
“Many borrowers continue to redeem ahead of schedule or switch to a repayment mortgage.
“However, there remains plenty more work to do over the coming years to ensure 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.
“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.”
Jonathan Harris, director of mortgage broker Anderson Harris, added: “Following the extravagant lending policies of the early 2000s, there was a backlash against interest only following the credit crunch.
“As lenders pulled out of the market, this sentiment was reinforced by the Mortgage Market Review in 2014.
“The FCA provided guidance on responsible lending, one major aspect of which was the need to have a viable repayment strategy in place for interest-only loans.
“These factors have driven down volumes of interest-only lending.
“It still has a place in the market but is rightly restricted to those who are genuinely in a position to repay the capital from credible sources.”