Posts with tag: interest-only loans

The Number of Interest-Only Mortgages has Dropped Sharply

Published On: June 7, 2016 at 10:06 am


Categories: Finance News

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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

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”.