Information from data provider Moneyfacts revealed that just 22 mortgage providers now offered the product, compared with 79 in 2007.
It also reported a 33 per cent drop since August 2012 when 33 providers offered the product.
Yorkshire Bank, Woolwich, HSBC and Clydesdale were the only large high street banks among the providers.
The remaining providers included Virgin Money, Aldermore, private bank Coutts and various building societies.
Coventry Building Society, RBS (including NatWest), Nationwide and Co-operative Financial Services left the interest-only market in 2012.
In December 2012 the Council for Mortgage Lenders suggested the departures were “pre-empting” of the implementation of the mortgage market review, which will take place in 2014.
A spokesman for Moneyfacts said the number of interest-only mortgages had fallen due to the element of risk that it carried. She said: “When considering this option the potential borrower must make sure that they are aware of all the information and choose the right deal to suit them.
“You are unable to rely on the sale of your property at the end of the mortgage to fund any debt that needs to be paid.”
Adviser Comment
Derek Gair, partner of Hampshire-based GDC Associates, said: “Realistically, with so many restrictions on what’s left in the interest-only market, you could argue that the market is even smaller than the quoted 22 providers.
“A few ask for a minimum loan which is so high that only the Duke of Westminster could afford it, so it’s very difficult to organise interest-only mortgages in the current climate.
“Interest-only lending is a prerequisite of a buoyant mortgage market, but anyone with one at the moment is almost treated like a pariah by the lenders. This is down to regulatory and government interference.
“How can the risk element change when an interest-only mortgage customer wants to remortgage? Surely the risk is the same as, if not less than, when the loan was taken out?”
