The latest FCA research said that the decrease was due to “borrowers moving in greater numbers onto repayment loans or repaying earlier than expected”.
The research said that interest-only mortgages make up nine per cent of the total number of regulated mortgages and part-and-part consist of three per cent.
It continued that of the remaining interest-only mortgages, the largest number was set to mature in 2031 and 2032 at 72,000 and 77,000 respectively. It noted that there was a smaller peak of 51,000 in 2027.
On the part-and-part side, 20,000 mortgages are expected to mature in 2031, followed by 18,000 in 2032. Around 13,500 part-and-part mortgages are set to mature in 2027.
Figures showed that 22,000 mortgages had not been repaid at the end of their stated mortgage term in the second half of last year, which is 2.2 per cent of the total number of interest-only and part-and-part mortgages.
Within that figure, half are overdue by 12 months or less, and only nine per cent are overdue by five years or more.
London accounts for nearly quarter of interest-only mortgage stock
The median balance of an interest-only mortgage is £140,000, with the median term coming to eight years and median borrower age is 56.
This compares to capital and interest mortgage where the median balance in £115,000, the median remaining term is 19 years, and the median borrower age is 43.
London accounts for 21 per cent of interest-only mortgage stock, followed by South West with 13 per cent, South East with 12 per cent and the East of England at 10 per cent.
The median loan to value (LTV) for an interest-only mortgage is 37 per cent, with only two per cent having an LTV of 75 per cent or more.
There is variation by age and geography, with older interest-only borrowers between 61 and 65 years old having lower LTV of 33 per cent compared to younger borrowers between 31 and 25 at 46 per cent.
Northern Ireland has the highest median LTV at 63 per cent, with East of England and South East having the lowest at 33 per cent.
The report continued that 65 per cent of interest-only borrowers have £200,000 or more equity in their home, with just under half having £300,000 or more.
Only three per cent have less than £50,000 and a further 10 per cent have between £50,000 and £100,000.
More than half of interest-only mortgages were taken out prior to 2009, and 88 per cent are in active books, with the remainder in closed books.
FCA will review existing interest-only guidance
The FCA’s consumer research showed that 78 per cent of borrowers were aware of the need to have a repayment plan in place when they took out a mortgage.
Around 82 per cent of borrowers are confident in their ability to repay the outstanding capital, however the FCA warned that some borrowers could be “over-optimistic”.
It pointed to 36 per cent of borrowers expecting some shortfall in repayments, compared to modelling implying that this could be closer to 46 per cent.
Borrowers without repayment plans should speak to their lender to discuss options, and the FCA said it would be engaging with the industry and consumer groups to discuss the findings and see how lenders can further support borrowers.
It added that it would also review existing guidance on the fair treatment of interest-only borrowers to ensure it is in line with Consumer Duty.
David Geale, director of retail banking at the FCA, said: “Whilst it is encouraging to see the number of interest-only mortgages reducing faster than expected, with the majority of loans being paid off or transferred to other products, the challenge remains for a significant number of borrowers.
“Taking an interest-only mortgage can mean lower monthly payments, but borrowers need a plan to repay the outstanding balance when the mortgage comes to an end. If you have an interest-only mortgage and are unsure if your current plan is sufficient, speak to your lender as soon as possible, to discuss your options.”
