According to data from the Council of Mortgage lenders, the number of interest-only loans has reduced by 16 per cent in the last year alone.
There were around 1.9m pure interest-only mortgages outstanding as at the end of 2014 according to CML members and around 460,000 part interest-only mortgages.
The organisation said that this was around 300,000 fewer pure interest-only mortgages and 160,000 part interest-only mortgages than a year earlier.
The CML said that a quarter of this reduction was down to natural attrition - loans maturing and repaying at the end of their term, and around a third can be attributed to full redemption of loans not set to mature until at least 2028, suggesting many borrowers are taking action well before problems could arise.
It added this also suggests that a significant group of borrowers are successfully remortgaging onto full repayment terms without falling foul of new affordability rules, adding that of those loans that have matured, few have failed to repay.
There were fewer than 16,000 loans outstanding which have matured but not yet repaid or restructured, and previous experience shows that most such loans subsequently redeem within a relatively few months of maturity.
The CML statistics come in stark contrast to Citizens Advice’s warning many interest-only mortgage borrowers could be left homeless.
Citizens Advice Bureau stated around a million people could have their homes repossessed because they have no way of paying off their interest-only mortgages.
The CML said that while the latest statistics were good news, there was no room for complacency and that members are continuing to think about the options for customers who may not be able to repay their mortgages, including more partnering with third-part advice providers, including equity release firms and product innovations that may help some borrowers.
The CML said it remains a challenge to get borrowers to respond to lender contact designed to help them plan for their mortgage’s repayment at maturity.
Lenders contacted around 427,000 interest-only customers between April and December 2014 (about 17 per cent of all interest-only borrowers) and during 2014, the focus of lender communications moved beyond those whose mortgages are due to mature by 2020, and included borrowers whose mortgages are not due to mature until after this.
Response rates by borrowers were varied, with around 27 per cent of those contacted whose mortgages are due to mature between 2021 and 2028 responded but only a disappointing 2 per cent of those whose mortgages are not due to mature until after 2028 did.
Eighty-six per cent of those who responded had a repayment strategy, and those who did not appeared responsive to making changes, such as switching to repayment terms, overpayments and term extensions.
The main practical focus for lenders needs to remain on getting customers to engage with them and discuss their plans, CML said.
It will try to help lenders develop approaches to customer contact strategies that most encourage customers to respond.
CML director general Paul Smee said: “The continued decline in interest-only mortgages outstanding confirms our perception that many borrowers are firmly on top of this issue, and successfully making plans to manage their loans to ensure they are not faced with a payment shortfall at maturity.
“But as an industry we clearly still have work to do to trigger more borrowers to respond to their lenders’ attempts to understand their intentions and help them plan ahead for the maturity of their loans.”
ruth.gillbe@ft.com
