Interest-Only Mortgage Demand Falls According To FCA

by | Tuesday 15th Aug 2023 | Mortgage News

Interest-only mortgages falling

Interest-only mortgages falling (Source: Homeownersalliance)

In a notable shift within the mortgage market, demand for interest-only mortgages has plummeted by over half over the last eight years, dropping below the one million mark, according to data released by the Financial Conduct Authority (FCA). The FCA’s recent report shows that the number of interest-only mortgage deals, including both pure interest-only and part-interest-only part repayment deals, has significantly declined, as homeowners seemingly increasingly choose more traditional repayment loans. Perhaps to pay off property debt sooner rather than later.

The FCA’s Data About Interest-Only Mortgage Loans

The FCA’s data released on their website this morning indicates that the total number of interest-only mortgages currently stands at 750,000, with an additional 245,000 which are classed as part-interest-only part repayment mortgages. This decline, which is down from their peak in 2015, has been attributed to borrowers transitioning to repayment loans or making early repayments or overpayments ahead of schedule. The FCA highlights that a substantial portion of those still on interest-only mortgages are set to see their loans mature in 2031 (72,000 loans) and 2032 (77,000 loans), with a smaller peak anticipated in 2027. Which means a lot of people will be expected to pay back these loans in some way, shape or form within 10 years. This trend underscores the gradual shift away from these mortgage products, as homeowners seek more stable and sustainable financing options.

The current low popularity of interest-only mortgages is a far cry from the surge that the market saw in 2012. At that time, UK Finance data recorded approximately 3 million interest-only and part-interest-only mortgages. The decline in interest-only mortgage demand can be partly attributed to the idea that interest-only mortgages could end up being a potential “ticking timebomb” if you don’t have a repayment plan in place. Back in 2012 and 2013, the FCA warned borrowers that around 1.3 million homeowners with interest-only or part interest-only mortgages might face difficulties repaying the loans at the end of the term, with an average shortfall expected to be above £71,000.

Changes To Interest-Only Loans

Responding to these concerns at the time (in 2012 and 2013), the mortgage industry underwent somewhat of a transformation. Lenders committed to an industry wide initiative aimed at reaching out to all customers whose interest-only mortgages were coming to an end on or before the end of 2020 to offer help and guidance. This initiative has since evolved into an ongoing program, reflecting a concerted effort to address the potential pitfalls associated with these mortgage products.

Despite these measures coming into effect, a recent FCA poll has indicated that while 78% of interest-only borrowers were aware of the necessity of having a repayment plan in place upon securing their mortgages, the regulator’s research suggests that this confidence may be somewhat misplaced. A substantial 36% of borrowers expressed an expectation of hitting a shortfall at the end of their mortgage term, but the FCA’s analytical models suggest that the actual figure could be closer to 46%.

Speak To a Mortgage Advisor

If you currently have an interest-only mortgage or are considering getting one, the best thing to di is speak with a mortgage broker before you start making any decisions. A mortgage advisor like our team at Oportfolio will be able to help you to weigh up the various options available to you, and help you to choose the most sensible and competitive option. Don’t waste time, give our team a call or send us a message today to book in a mortgage appointment. We are here to help.

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If you have any questions about UK mortgage news or or anything you’ve read then please get in touch. We’d love to hear from you.

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