The number of homeowners using interest-only mortgages

Independent

14 hours ago

The number of homeowners with interest-only mortgages has decreased as borrowers repay their loans on time or ahead of schedule, according to a banking and finance industry trade association.
At the end of 2024, there were 541,000 "pure" interest-only homeowner mortgages outstanding, a decrease of 18.5 per cent compared to 2023.
Additionally, there were 174,000 partial interest-only homeowner mortgages outstanding at the end of 2024, a 13.0 per cent decrease compared to the previous year.
With interest-only mortgages, borrowers only pay the interest on their debt, rather than paying down the capital.
This reduces monthly repayments but requires the initial loan amount to be repaid eventually, typically through savings or investments.
The Financial Conduct Authority (FCA) has previously encouraged interest-only mortgage holders without a sufficient repayment plan to contact their lender to discuss their options.
Research for the FCA published in 2023 indicated 82 per cent of borrowers were confident they could repay what remained on their loan at the end of the mortgage term, but the regulator was concerned some people may be 'overly optimistic'.
UK Finance said the total interest-only mortgage stock (including partial interest-only deals) has reduced by 78 per cent in number and 61 per cent in value since 2012, when figures were first collected.
Charles Roe, director of mortgages at UK Finance, said: 'In 2024, customers with interest-only mortgages continued to pay on or ahead of schedule, with 150,000 fewer mortgages on interest-only terms at the end of the year than at the start.
'Lenders' proactive communications strategies continue to ensure that those with historic interest-only loans have plans and ability to repay, with tailored help available for those who do not.
'The interest-only book has shrunk in size each year since the end of the financial crisis and is now around one fifth of the number seen in 2012, when these data were first collected.
'It is particularly encouraging that the numbers of interest-only loans at higher loan-to-value ratios has fallen sharply – around twice the overall contraction – with a similar movement in those loans set to mature over the next two years.
'Those customers whose loans are theoretically most at risk continue to redeem ahead of time, reducing the risk profile of the remaining interest-only book.
'The small number of borrowers who do not repay immediately upon maturity remains very low, and data consistently indicate the vast majority of these do in fact repay in full over the first few months following the end of term.
'As always, any customers worried about repaying their mortgage should contact their lenders early, who stand ready to help with a range of options to repay.'