"This puts the future of interest-only mortgages in-doubt and risks limiting consumer choice at a time when borrowers have proven their ability to meet repayment commitments."
- Rachael Hunnisett, director of April Mortgages
Interest-only mortgages could make up as little as 2% of the mortgage market by 2034, according to analysis of UK Finance data by April Mortgages.
The number of outstanding interest-only mortgages in the UK has fallen by 70% over the past 10 years to 664,000 一 just 8% of the overall residential mortgage market.
In that time, more than 1.5 million interest-only loans have reached maturity with borrowers either repaying their mortgage in full or switching to a repayment deal.
Over the next decade, April Mortgages forecasts that if the current rate of decline persists, the number of interest-only mortgages could drop below 200,000.
Since 2013, numbers have decreased by 11% a year on average, and assuming this annual rate was to continue it would leave only 184,000 outstanding interest-only deals by 2034.
Rachael Hunnisett, director of April Mortgages, commented: “The interest-only market has shrunk to just over one-quarter of its size 10 years ago.
“Part of this reduction in the market will be driven by enhanced regulatory oversight which has played a crucial role in ensuring responsible lending practices, alongside lenders scaling back or withdrawing interest-only products to align with their own appetites to lend.
“Our projections based on market trends from the last decade reveal that interest-only mortgages could make up as little as 2% of all outstanding residential mortgages by 2034.
“This puts the future of interest-only mortgages in-doubt and risks limiting consumer choice at a time when borrowers have proven their ability to meet repayment commitments.
“The interest rate shock that many borrowers are currently experiencing as their fixed mortgage comes to an end, highlights why interest-only deals should remain widely-available to borrowers.
“Homeowners who are facing a sharp rise in their mortgage repayments may not want to lock in a higher rate or have to extend their mortgage term to keep costs down.
“An interest-only mortgage can be a viable solution in this situation as it hands control back to the borrower and provides greater payment certainty and security.
“While interest-only mortgages are not for everyone, they can be advantageous for older homeowners with considerable equity, as well as first-time borrowers wanting to improve their affordability.”
