Borrowers on interest-only mortgages who are concerned about how they will repay their loan are being urged to speak to their lender rather than ‘burying their head in the sand’.
The advice comes as it emerged the number of interest-only mortgages nearly halved in the last six years, falling from 3.2 million in 2012 to 1.7 million today.
Data from UK Finance, the financial services trade body, also revealed that of the one million interest-only loans due to mature in 2020 which were live at the end of 2012, just 200,000 now remained.
Changes in regulation over the past few years, along with huge strides being made by mortgage lenders and other major players in the industry to crackdown on the numbers of people on interest-only mortgages, mean the plummeting figures have come as no surprise.
But UK Finance said there was still ‘plenty of work to do’ to ensure remaining borrowers who were reluctant to engage by redeeming ahead of schedule or switching to a repayment mortgage had viable plans in place.
Jackie Bennett, director of mortgages at UK Finance, said: “We continue to encourage 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.”
Jonathan Harris, director of mortgage broker, Anderson Harris, explained following the ‘extravagant’ lending policies of the early 2000s, there was a backlash against interest-only following the credit crunch.
He added: “As lenders pulled out of the market, this sentiment was reinforced by the Mortgage Market Review in 2014. The Financial Conduct Authority (FCA) provided guidance on responsible lending, one major aspect of which was the need to have a viable repayment strategy in place for interest-only loans.
“These factors have driven down volumes of interest-only lending. It still has a place in the market but is rightly restricted to those who are genuinely in a position to repay the capital from credible sources.”
He also urged borrowers who had interest-only mortgages and were concerned about how they were going to pay it back to speak to their lender, rather than burying their heads in the sand.
“There are solutions and the sooner you address the issue, the better,” he added.
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For the generation in retirement brought up on interest only mortgages, there should be no panic around the fact that they are probably one of the best credit risks around and have very generous equity in their properties.
They have the ability to downsize, or arrange equity release. They should therefore be given the option to continue with their interest only schemes rather than force unaffordable repayment schemes upon them.