Outstanding interest-only loans fall to £130k


The number of outstanding interest-only mortgages has fallen 13% since last year to 2.8 million, while the total amount still owed dropped 14% to £363 billion, according to the Council of Mortgage Lenders (CML).

That means the average loan balance is just shy of £130,000, compared to £132,500 last year.

The CML said the numbers are "shrinking more rapidly than through the 'natural' process of paying off loans at the end of the term".

Instead, more borrowers are actively addressing the need to re-pay capital by switching to repayment mortgages, it added.

"By March 2014, the total number of interest-only mortgages due to mature by 2020 had fallen to 800,000, or by 18%," the CML said in a statement.

"Much of this decline had been achieved through the 'natural' process of loans coming to the end of their term and being paid off, as expected. But we estimate that the number of borrowers opting to switch to a capital repayment option accounted for more than 10% of this decrease."

Another reason helping the improvement is rising house prices. "House price inflation has the effect of improving the equity position of borrowers," the CML explained.

In other words, as house prices rise, the difference between the amount outstanding on the mortgage in relation to the value of a property falls. This means the proportion of outstanding interest-only mortgages held at higher loan-to-value ratios declines.

The CML also said mortgage lenders had been committed to helping customers coming to the end of their mortgage terms in 2020 with hefty sums outstanding.

However, the CML added that more needs to be done: "To paraphrase Winston Churchill, a successful outcome to the 2020 communications strategy is not the beginning of the end of the challenges for lenders in dealing with interest-only mortgages, although it may be the end of the beginning.

"We agree with the FCA that it is too early to declare success overall, but we believe that the findings of our research are encouraging."

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