However, payment challenges remain for a significant number of borrowers
The number of interest-only and part-interest-only mortgages have halved since 2015 due to borrowers moving onto repayment loans or repaying earlier than expected, data analysis from the Financial Conduct Authority (FCA) has revealed.
The FCA said the total of interest-only mortgages went down to 750,000 while the number of part-interest-only mortgages fell to 245,000. Of these, the greatest number of interest-only mortgages are set to mature in 2031 with 72,000 and in 2032 with 77,000.
The regulator stressed that this meant that borrowers without a repayment plan still had time to act and reduce at least some of their outstanding capital by the end of their mortgage.
Consumer research, commissioned by the FCA, found more than three quarters, or 78%, of borrowers were aware of the need to have a repayment plan in place when they took out the mortgage. It also showed that 82% of borrowers were confident in their ability to repay the outstanding capital at the end of the mortgage term.
However, the research suggested that while only 36% of borrowers expected some shortfall, modelling suggested this could be closer to 46%.
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.
— Financial Conduct Authority (@TheFCA) August 15, 2023
If you don’t have a repayment plan, speak to your #lender to discuss your options.https://t.co/9h4p27dmJ5
The FCA advised borrowers without a repayment plan to speak to their lender to discuss their options, and clarified that simply speaking to their lender wiould not affect their credit rating.
“While it is encouraging to see the number of interest-only mortgages reducing faster than expected, with the majority of loans being paid off or transferred to other products, the challenge remains for a significant number of borrowers,” said David Geale, director of retail banking at the Financial Conduct Authority.
“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. If you have an interest-only mortgage and are unsure if your current plan is sufficient, speak to your lender as soon as possible, to discuss your options.”
The FCA said it would be engaging with industry and consumer groups to discuss the research findings and how lenders could further support borrowers who might not be able to repay all the capital owed at the end of their mortgage term.
The regulator added that with the Consumer Duty now in effect, it would review its existing guidance on the fair treatment of interest-only borrowers to ensure it was in line with the higher standards set by the new regulations.
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