The ongoing contraction of the interest-only mortgage book was highlighted today as borrowers continued to repay their loans on or ahead of schedule, despite the economic pressures of 2022.
Charles Roe, director of mortgages at UK Finance, said: “Even as cost-of-living and rate pressures built through 2022, interest-only mortgage customers continued to repay their loans, many well ahead of the scheduled maturity date.”
Interest-only mortgages, which numbered over three million ten years ago, have now dwindled to a little over a quarter of that size. This has been largely driven by borrowers’ proactive repayment strategies and lenders’ targeted programmes to reach out to their interest-only customers.
“The small number of borrowers who do not repay immediately upon maturity remains very low, and data indicate the vast majority of these do in fact repay in full over the first few months following the end of term,” added Roe.
Roe underscored the continued willingness of lenders to provide assistance to those who may be concerned about mortgage repayment, advising customers to contact their lenders early.
End-of-year data shows a continued contraction in the interest-only mortgage book. There were 702,000 pure interest-only homeowner mortgages outstanding at the end of 2022, marking a reduction of 6.9% from the previous year. Additionally, there were 222,000 partial interest-only homeowner mortgages, down by 11.9% from 2021.
Since these data were first collected in 2012, the total interest-only mortgage stock has reduced by 71% in number and 56% in value. Of particular note is the significant 33.3% reduction in the number of interest-only loans at higher loan-to-values (over 75%) in 2022. These loans now make up 5% of the total, down from 7% in 2021 and a significant decrease from 36% in 2012.
Furthermore, the number of interest-only loans set to mature by 2027 shrank by 73,000 in 2022 to 261,000 loans, a fall of 21.9%. This trend underscores the ongoing contraction of the interest-only mortgage market, even amid a year of rising cost pressures.
