Mortgages  

Warning letters prompt interest-only mortgage action

One year on from the agreement between the Council of Mortgage Lenders and the FCA, the trade association reveals what action has been taken by borrowers with interest-only mortgages.

A year after lenders agreed to contact all borrowers with interest-only mortgages due to mature before the end of 2020, the CML today (1 May) reported a “significant” reduction in outstanding interest-only mortgage debt.

Based on a CML survey representing around 96 per cent of the market, at the end of 2013 there were an estimated 2.2m pure interest-only loans outstanding, and a further 620,000 part interest-only, part repayment mortgages outstanding on lenders’ books.

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Compared with 2012 this represents a fall of around 300,000 pure interest-only mortgages (down 12 per cent), and around 90,000 part-and-part mortgages (down 13 per cent).

There has also been a positive set of changes in the loan-to-value profile of outstanding interest-only mortgages.

Two-thirds of outstanding interest-only mortgages have loan-to-value (LTV) ratios of less than 75 per cent - and the vast majority of these are not due to mature until after 2020.

Analysis by the CML showed that a large number of loans would have moved into a lower LTV band as a result of house price inflation alone.

However Paul Smee, director general of the CML, said there is still likely to be a cohort of borrowers who may find it difficult to put in place adequate plans to repay their interest-only mortgages in full and on time.

But he added the number of such borrowers is likely to be “relatively modest.”

Mr Smee said: “The regulator, mortgage lenders and the CML are collaborating very effectively so far to help interest-only borrowers manage their loans and avoid surprises when their loans mature. This work will continue, not just over the next year but over the long term.

“For the minority of borrowers who cannot reach full repayment by maturity, lenders are fully committed to helping customers reach the best outcome available for their circumstances.

“Other steps are possible - perhaps releasing equity through a lifetime mortgage, downsizing, or selling and moving into rented accommodation, and our continuing programme of contact should help borrowers identify and implement what works for them.”