The variety of interest-only mortgages has fallen by half over the past eight years to beneath one million, Financial Conduct Authority information exhibits, as householders transfer to extra typical loans.
The watchdog says that the quantity of interest-only offers, at 750,000, and part-interest-only home loans, at 245,000, have halved since 2015.
It provides: “The fall is a result of borrowers moving in greater numbers onto repayment loans or repaying earlier than expected.”
The FCA says of these remaining on interest-only mortgages the best quantity are set to mature in 2031, 72,000 loans, and 2032, 77,000 offers, with a smaller peak in 2027.
Concern over these kind of mortgages hit a peak in 2013, when the FCA labelled interest-only mortgages a “ticking timebomb”.
It stated that round 1.3 million householders with such loans could not have sufficient money to repay the principal debt when due for reimbursement and face a mean shortfall of greater than £71,000.
The quantity of those loans within the UK peaked in 2012 at round 3 million interest-only and part-interest-only mortgages, in keeping with UK Finance information.
Lenders had been inspired to make an industry-wide dedication to contact all prospects with an interest-only mortgage maturing on or earlier than the tip of 2020, which has been rolled out into an ongoing programme.
An FCA ballot discovered that 78% of interest-only debtors are conscious of the necessity to have a reimbursement plan in place after they took out the mortgage.
And that 82% of those debtors are assured they will repay the excellent capital on the finish of the mortgage time period.
But the FCA says its analysis “suggests this may be overly optimistic – while 36% of borrowers expected some shortfall, modelling suggests this could be closer to 46%.”
FCA director of retail banking David Geale provides: “While it’s encouraging to see the variety of interest-only mortgages decreasing quicker than anticipated, with nearly all of loans being paid off or transferred to different merchandise, the problem stays for a big variety of debtors.
“Taking an interest-only mortgage can mean lower monthly payments, but borrowers need a plan to repay the outstanding balance when the mortgage comes to an end.”
The watchdog says it should discuss to {industry} and shopper teams “to discuss the research findings and how lenders can further support borrowers who may not be able to repay all the capital owed at the end of their mortgage term”.
It provides that since its Consumer Duty guidelines got here into power final month, it “will evaluation its present steering on the honest therapy of interest-only debtors to make sure it’s according to the upper requirements set by the Duty.
“Firms should now be considering how they support their borrowers and meet expectations set out by the Duty.”
The FCA analysis was carried out by information group Opinium, which surveyed 1,000 interest-only mortgage holders between 11 and 30 August final 12 months.
