Less than 1mn interest-only mortgages outstanding as FCA continues scrutiny

The research, 'Interest-only mortgages: analysis of FCA mortgage data', reported that the total number of interest-only mortgages, including partly-interest-only mortgages, has fallen from 2.2mn in the first half of 2015 to 993,703 as at December 31 last year.

The regulator found that the number of interest-only mortgages still outstanding was now 749,524 (8.8 per cent of regulated mortgages) and for partly-interest-only it was 244,179 (2.9 per cent).

The fall is a result of borrowers moving in greater numbers onto repayment loans or repaying earlier than expected. 

However, FCA director of retail banking, David Geale, warned that, while it is "encouraging" to see the number of interest-only mortgages reducing faster than expected, the challenge remains for a "significant number of borrowers”.

Interest-only mortgages are mortgages where the borrower’s monthly payments cover only the interest on the amount borrowed. The borrower then needs to have a method of repaying the capital (the amount borrowed) by the end of the mortgage term.

The research additionally discovered a regional variance in interest-only mortgages, with areas in the south and east of England possessing a “disproportionately” large share of the UK’s total stock.

It detailed that London accounts for 21 per cent of interest-only mortgages (including partly-interest-only), the highest per cent of any UK region.

This was ahead of the south-west (which accounted for 13 per cent), the south-east (12 per cent) and the east (10 per cent).

Maturity

Additionally, the research provided insight into the maturity dates of interest-only mortgages, with the “peak years” of 2031 and 2032 identified as the years when the largest number of these mortgages are due to mature.

It detailed that 71,766 interest-only and 19,589 partly-interest-only mortgages are due to mature in 2031 and a further 76,933 interest-only and 17,918 partly-interest-only will mature the year after.

This represents a grand total of 91,355 in 2031 and 94,851 in 2032.

Only a “small proportion” of interest-only and partly-interest-only mortgages were found to be past their maturity date.

The research found that, as of H2 2022, there were around 22,000 such mortgages past their maturity date, representing just 2.2 per cent of the total number of interest-only and partly-interest-only mortgages.

Customer responses

The topic of mortgage maturity was also examined in another report commissioned by the FCA, “Interest-only Mortgages Research”, which was conducted by Opinium and gathered responses from savers with interest-only mortgages.

Opinium's survey, which was published in January of this year, discovered that 28 per cent of respondents have mortgages that will mature within the next five years.

A further 25 per cent said their mortgage would mature within the next five to 10 years and 20 per cent said it would mature after more than 20 years.

The survey also examined the reasoning for customers taking out interest-only mortgages, revealing 31 per cent of respondents made their decision based on advice from a financial adviser or broker.

This was the most common response, ahead of lower monthly payments (identified by 27 per cent of respondents), better value in the long run (18 per cent), and being the only affordable mortgage (17 per cent).

It was additionally revealed that 32 per cent of respondents switched to an interest-only mortgage at a later date due to the lower monthly payments.

Repayment plans

Insight was also provided into repayment plans, with 78 per cent of respondents reporting they were aware they needed a repayment plan when they took out the mortgage

This was in contrast to the 14 per cent of respondents who did not know when they took out their mortgage.

Additionally, one in 10 respondents were not able to share an intended repayment strategy, with 7 per cent saying they did not know how they would pay off their mortgage and 3 per cent saying they could not afford to.

Geale stated: "If you have an interest-only mortgage and are unsure if your current plan is sufficient, speak to your lender as soon as possible, to discuss your options."

tom.dunstan@ft.com

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