According to UK Finance, there were approximately 3.2 million interest-only mortgages outstanding in 2012. A review carried out by the financial watchdog found that many borrowers had no repayment plan in place, putting them at risk of losing their home at the end of their mortgage term. Fortunately, lenders have made significant strides to tackle the problem and the number of homeowners with interest-only mortgages has almost halved in the past six years.
Lenders contacting borrowers to discuss their options
For borrowers with an interest-only mortgage maturing before the end of 2020, lenders have been actively communicating with them to find out what plans they have in place to repay their loans. Where there have been problems, i.e. borrowers having little or no ability to pay their mortgage balance, lenders have been actively working with them to find a solution.
Their efforts seem to have worked, as of the one million interest-only loans due to mature by the end of 2020 only around 200,000 now remain, as borrowers have redeemed ahead of schedule or switched to a repayment mortgage.
“However, there remains plenty more work to do over the coming years to ensure that those remaining borrowers who have so far been reluctant to engage have viable repayment plans in place. We continue to encourage all borrowers with interest-only mortgages to contact their lender as soon as possible, as the sooner they do so the more options will be available” said Jackie Bennett, director of mortgages at UK Finance.
1.7 million interest-only mortgages still in place
Whilst significant strides have been made assisting the borrowers whose mortgage term ends imminently, 1.7 million interest-only mortgages still remain. Borrowers without a plan in place to repay their mortgage are being encouraged to talk to their lenders sooner rather than later. The good news is there is a growing number of specialist products aimed at -older people coming to the end of an interest-only mortgage.
Is it the end of the interest-only mortgage?
According to Jonathan Harris, director of mortgage broker Anderson Harris, interest-only mortgages do have a place in the market, but “rightly restricted to those who are genuinely in a position to repay the capital from credible sources.”