Number of owners with interest-only mortgages falls steeply

The number of home owners in the UK with interest-only mortgages has almost halved in the past six years, with a steep fall in higher loan to value mortgages.

New figures from UK Finance reveal that there are currently 1.7 million outstanding interest only mortgages, including partial interest only, down 46% since 2012, when this data was first collected.

It is good news at a time when there have been concerns about people with interest only mortgages facing a shortfall in repayment terms that could lead to them losing their homes.

But UK Finance says that of the one million interest only loans due to mature by 2020 that were live at the end of 2012, only around 200,000 now remain. It is urging those who have not already spoken to their lender to do so.

Overall, there were 1,293,000 pure interest-only home owner mortgages outstanding at the end of 2017, a 14.9% fall over the last year. There were 429,000 partial interest only homeowner mortgages outstanding at the end of 2017, a 2.1% rise over the last year.

The number of interest only loans at higher, over 75%, loan to values fell by 13.9% in 2017 and loans at these higher LTVs now make up 13% of the total, compared to 1% in 2016 and 36% in 2012.

Separate analysis by UK Finance reveals that of the one million interest only loans due to mature by 2020 that were live at the end of 2012, only around 200,000 now remain. Whilst making contact with borrowers who are more reluctant to engage remains a challenge, there is also evidence that lenders are seeing greater success here, and the vast majority of borrowers who do engage have repayment plans in place.

Jackie Bennett, director of mortgages at UK Finance, said:

‘The number of outstanding interest only loans has halved in the past six years, with a particularly steep decline in higher loan to value mortgages. Many borrowers continue to redeem ahead of schedule or switch to a repayment mortgage.

‘However, there remains plenty more work to do over the coming years to ensure that those remaining borrowers who have so far been reluctant to engage have viable repayment plans in place.

‘We continue to encourage all borrowers with interest only mortgages to contact their lender as soon as possible, as the sooner they do so the more options will be available. UK Finance will also be developing new best practice for lenders in this area, to reflect the changing regulatory landscape and help the industry engage successfully with more borrowers.

Mark Pilling, managing director of Spicerhaart corporate sales, believes it is vital that borrowers realise that the sale of their property to pay the loan back is not the only option. He says more lenders are working with third parties to find ways either to grant a ‘later life’ loan or an equity release option.

Mark Pilling said:

‘All have their pros and cons so need to be looked at with each borrower on an individual basis. While lenders are getting much better at contacting interest only borrowers, there are still thousands of borrowers who are burying their heads in the sand, and others who have been allowed, but their lenders, to continue to make payments after the end of the term. While this may seem to help the borrower in the short term, in the long term it can be very damaging. Not only is it just ignoring the problem, but it also brings its own challenges, as once the payment date has passed then the borrower is effectively out of contract.

‘It is vital that these lenders engage with these borrowers, sooner rather than later, but this can be a huge task. The most successful lenders are engaging with professional third parties who look after their interest only book for them. Their job is to ensure every borrower is engaged and a solution is reached.

‘This is hugely successful as it protects the lenders’ reputations while also achieving the best outcome for the borrowers concerned. Dealing with interest only loans does not have to be a negative process. We have already dealt with a large number of interest only expired loans and always reach a positive outcome for both the lender and the borrower.’


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