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The Number of Interest-Only Mortgages has Dropped Sharply
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
The number of interest-only mortgages has dropped sharply since 2012, according to data from the Council of Mortgage Lenders (CML).
Research has found that there were around 3.2m interest-only loans in 2012, when the CML began collecting data, but that figure has fallen to about 1.7m today, with a further
The Number of Interest-Only Mortgages has Dropped Sharply
500,000 mortgages being part-and-part.
A regulatory clampdown in the mortgage sector has made it more difficult for homebuyers to acquire interest-only loans, which are usually deemed too risky for ordinary homeowners. However, this type of mortgage is still available to landlords.
Lenders have been actively tackling the issue with interest-only mortgages by contacting borrowers to explore their options if there are difficulties in replaying the loan.
Many lenders also seem to be steering borrowers away from interest-only options when remortgaging comes around.
The CML reports that a significant proportion of the decline in interest-only mortgages came from loans being paid off, which indicates that purposeful remortgaging played a large part.
The figures show that 29% of total redemptions were from loans due to mature from 2028.
The Analytics Manager at CML, James Tatch, says: “In some cases, the borrowers will now be mortgage-free, either trading down or paying off in full from savings or other sources. But where they took out a new mortgage on redemption, our research suggests that, in most cases, this was on a repayment basis, rather than a new interest-only loan to replace the old one.
“Another trend we have seen is the overall profile of the remaining interest-only stock becoming progressively lower-risk each year, in terms of borrowers’ debt relative to property value.”
With targeted interest-only contact strategies now a permanent feature of lenders’ back-book management, “we see this positive story continuing,” according to Tatch. However, he warns that this is vital that those borrowers still with interest-only loans “engage with lenders” at each point of contact, to ensure that any “risks are identified and managed at the right stage”.
