Number of interest-only mortgages halves since 2015: FCA

The number of interest-only (750,000) and part-interest-only (245,000) mortgages has halved since 2015 as a result of borrowers moving in greater numbers onto repayment loans or repaying earlier than expected, new FCA analysis has found.

Of those remaining, the greatest number of interest-only mortgages are set to mature in 2031 (72,000) and 2032 (77,000), with a smaller peak in 2027. This means borrowers without a repayment plan still have 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 that 78% of borrowers were aware of the need to have a repayment plan in place when they took out the mortgage.

The research 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 suggests this may be overly optimistic – while 36% of borrowers expected some shortfall, modelling suggests this could be closer to 46%.

The FCA will now be engaging with industry and consumer groups to discuss the research findings and how lenders can further support borrowers who may not be able to repay all the capital owed at the end of their mortgage term.

Over the past decade, the FCA has put in place new rules and guidance for firms to make sure interest-only borrowers were being treated fairly, especially those at risk of not being able to repay. It carried out a review in 2018 to check the fair treatment of these borrowers.

With the Consumer Duty now in effect, the FCA will review its existing guidance on the fair treatment of interest-only borrowers to ensure it is in line with the higher standards set by the Duty.

David Geale, director of retail banking at the FCA, said: "Whilst 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.

"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."