1st May 2014
Borrowers with interest only mortgages are becoming increasingly aware of the need to pay down their loans the trade body for mortgage lenders says.
The Council of Mortgage Lenders and the financial watchdog, the Financial Conduct Authority agreed 12 months ago that lenders should contact all borrowers with interest-only mortgages due to mature before the end of 2020 to talk about their options.
The CML now says that people are clearly taking action to reduce the risk of not being able to repay their loan when it matures.
Based on a CML survey representing around 96% of the market, at the end of 2013 there were an estimated 2.2 million pure interest-only loans outstanding, and a further 620,000 part interest-only, part repayment mortgages outstanding on lenders’ books.
Compared to 2012 this represents a fall of around 300,000 pure interest-only mortgages (down 12%), and around 90,000 part-and-part mortgages (down 13%).
The amount people owe as a percentage of the cost of the property has also fallen. The CML says that two-thirds of outstanding interest-only mortgages have loan-to-value (LTV) ratios of less than 75% – and the vast majority of these are not due to mature until after 2020.
It also argues a number of loans would have moved into a lower LTV band as a result of house price inflation alone, the statistics also show that borrowers are taking additional action to reduce their mortgage balances, as the effect of house price inflation alone would not have resulted in the improvements in outstanding LTVs that have been seen over the past year.
CML director general Paul Smee says: “The regulator, mortgage lenders and the CML are collaborating very effectively so far to help interest-only borrowers manage their loans and avoid surprises when their loans mature. This work will continue, not just over the next year but over the long term.
“For the minority of borrowers who cannot reach full repayment by maturity, lenders are fully committed to helping customers reach the best outcome available for their circumstances. Other steps are possible – perhaps releasing equity through a lifetime mortgage, downsizing, or selling and moving into rented accommodation, and our continuing programme of contact should help borrowers identify and implement what works for them.”