Latest figures from the Council of Mortgage Lenders (CML) show a 16% decline in interest only loans.
Approximately 1.9 million pure interest-only mortgages were reported as outstanding by CML members at the end of 2014, along with about 460,000 part interest-only mortgages.
Compared to a year earlier, this is around 300,000 fewer pure interest-only mortgages and 160,000 fewer part interest-only mortgages.
These figures were released as the CML announced how it has made good progress checking that borrowers with interest-rate mortgages have plans for how they will repay their loans at maturity.
Paul Smee, CML director general, said:
“The continued decline in interest-only mortgages outstanding confirms our perception that many borrowers are firmly on top of this issue, and successfully making plans to manage their loans to ensure they are not faced with a payment shortfall at maturity.
However, speaking on the subject lately, Jeni Browne, head of regulated and buy to let lending at Mortgages for Business noted that a couple of very major players have actually reviewed their stance on interest only mortgage lending recently.
Natwest, for example, has gone from no interest only borrowing at all, to offering it at 75% LTV (albeit with some fairly stringent eligibility points).
Browne believes that there are several reasons behind this shift, not least the desire to increase market share, by making lending more attractive with the offer of interest only.
“The fact that the CML has reported that the number of interest only mortgages has fallen substantially recently indicates that borrowers are indeed becoming more attuned to the fact that an interest only mortgage will eventually need to be repaid and thus, lenders are feeling a little more comfortable with this as a set up,”
“Furthermore, the entry points to obtain an interest only mortgage mean that only a certain segment of borrowers can obtain lending on this basis. To give you an idea, to obtain a NatWest interest only mortgage, at least one borrower must earn over £100k pa and have an acceptable repayment strategy in place.
This broadly translates to having the money to repay already (i.e. ISA, pension or other property).
Incidentally, you can use the sale of the main residence but you must have £200k equity in the property at the point of application and the max LTV is 50% for the interest only element,”
Although Browne admitted that there are variations on this, she concluded that while it is a positive sign to see lenders revisiting criteria and making adjustments to broaden their offering, interest only mortgages remain safe-guarded and not something which are available to everyone.
For more information on interest only mortgages please read:
Jeni Browne's article in Q4 FirstRate (pg10).