The trade body’s data showed that 1.23 million interest-only mortgages were outstanding last year, down more than half from the 2.5 million in 2012.
Interest-only mortgages due to mature in 2019 and 2020 also fell significantly, down 42 per cent from 217,000 to just 126,000.
Other segments of the interest-only market saw significant falls in the last 12 months.
The number of loans at over 75 per cent loan-to-value fell by 13.8 per cent in and now make up 13.4 per cent of the total, compared to 36 per cent in 2012.
Meanwhile, partial interest-only mortgage numbers fell 16.1 per cent to 360,000, down from 705,000 in 2012.
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The figures are likely to be welcomed by the Financial Conduct Authority (FCA) which has warned that interest-only borrowers could become an industry crisis if they do not put plans in place to repay the underlying capital on their loans.
UK Finance said the latest reduction followed an industry-wide commitment by regulated lenders to contact all interest-only borrowers with loans scheduled to mature before the end of 2020, to ensure they were on track to repay their loans or work out an alternative solution.
Ensure all borrowers are aware
UK Finance director of mortgages Jackie Bennett was particularly encouraged to see the continuing rapid contraction in the numbers 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,” she said.
“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.”