The number of interest-bearing loans outstanding continues to decline

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“This accelerated volume of redemptions was greatly aided by the industry communication program”

Compared to the situation at the end of 2020, outstanding interest-only loans fell by 15% in 2021 and have fallen by two-thirds since the industry body began collecting data in 2012.

A decade ago, 3.2 million interest-only mortgages were outstanding, raising serious concerns about consumers’ means of repayment – but a concerted industry-wide effort to discuss repayment has resulted in to drastically reduce this figure to just 745,000 pure interest loans at the end of 2021 and another 252,000 on an interest-only portion.

This represents a continuing downward trend in the size of outstanding interest-only loans, many of which are being paid off earlier than expected.

The report notes:

“This accelerated volume of redemptions has been greatly aided by the industry’s communication program. Even where borrowers do not respond directly, the contact will nonetheless have prompted many clients to review their situation and act where necessary.”

“Some borrowers will have repaid in full, which is more likely for earlier installments where balances are relatively low. Others will have remortgaged on full or partial repayment terms or, for some older interest-only customers, where it is the most suitable option, over a lifetime or retirement interest mortgage (neither of which are included in these figures).”

“In addition to downsizing, the risk profile of outstanding interest-only mortgages has also continued to improve. Helped in part by a year of strong price growth (about ten percent according to the Nationwide Index ), the typical LTV on outstanding interest-only mortgages has dropped. With this, the risk for borrowers and lenders has also been reduced in the event of repayment problems. In particular, there are now only 51 ,000 pure interest mortgages outstanding at over 75% LTV, down 41% from a year ago, and 94% below the 900,000 at these higher LTVs in 2012.”

“While these improvements remain welcome news, there are still one million interest-only loans outstanding, and the communication program will remain in place as this stock is managed to final maturities in the 2030s.”

Leon Diamond, CEO of LiveMore, commented on the numbers:

“Although the amount of new interest-only mortgages taken out in 2021 is low at 3% of total loans (32,000 loans), there is still a place for this type of loan.

“There are a million interest-only loans outstanding and some borrowers will be unable to repay the principal when their mortgages come due. They are likely to be over 50 and this sector of the mortgage market is very underserved. People may think their only option is to sell, but they could take out another interest-only mortgage to pay off the first one.

“Because we consider all of a client’s income, including pensions, investments and any other assets, many people will find they ultimately qualify for a mortgage.”

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