Number of interest-only loans is cut by a quarter, but debt still looms for nearly 2m borrowers

22nd September 2015


Over the past two years, the total number of interest-only loans outstanding has fallen by more than 25%, with a 16% reduction in the number of loans over the past year, Council of Mortgage Lenders data shows.

However, as at the end of 2014, CML members reported that there were still around 1.9 million pure interest-only mortgages outstanding, and around 460,000 part interest-only mortgages.

This was around 300,000 fewer pure interest-only mortgages and 160,000 part interest-only mortgages than a year earlier.

The update comes after a warning from the regulator two years ago that borrowers were facing a ticking “timebomb” as many had taken out interest-only loans during the boom years without a plan for repayment.

The CML’s figures illustrate steps that are being taken by the industry to check that borrowers with interest-only mortgages have plans for how they will repay their loans at maturity.

A quarter of the reduction in interest-only loans is down to mortgages maturing and being repaid at the end of their term.

Around a third can be attributed to early repayment of loans not set to mature until at least 2028, which the CML says is evidence that many borrowers are taking action well before problems could arise.

This also suggests, according to the trade body, that a significant group of borrowers are successfully  remortgaging onto full repayment terms without falling foul of new affordability rules.

In total, there are fewer than 16,000 loans outstanding which have matured but not yet repaid or restructured – and previous experience shows that most such loans subsequently redeem within a relatively few months of maturity.

It remains a challenge to get borrowers to respond to lender contact designed to help them plan for their mortgage’s repayment at maturity. Lenders contacted around 427,000 interest-only customers between April and December 2014 (about 17% of all interest-only borrowers).

During 2014, the focus of lender communications moved beyond those whose mortgages are due to mature by 2020, and included borrowers whose mortgages are not due to mature until after this.

Response rates by borrowers varied. Around 27% of those contacted whose mortgages are due to mature between 2021 and 2028 responded, but only a disappointing 2% of those whose mortgages are not due to mature until after 2028 did. However, where lenders did succeed in getting customers to respond, 86% of those who responded had a repayment strategy, and those who did not appeared responsive to making changes (such as switching to repayment terms, overpayments and term extensions).

CML director general, Paul Smee, says: “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.”


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