On 31 May 2016, the CML published new data on how the stock of existing interest-only mortgages is evolving.
The CML estimates that as at the end of 2015, there were 1.7 million pure interest-only mortgages still outstanding and a further 500,000 on a part interest only and part repayment basis. This amounts to a fall of almost a third in the interest only stock since 2012.
The decline in loans outstanding is driven by the amount of loans set to mature in that year. However, only a third of the decrease last year came from scheduled maturities. The majority of redemptions continue to be of loans years before the maturity date. In all, 29% of the total came from loans that were not due to mature until at least 2028. Where borrowers took out a new mortgage on redemption, CML research suggests that this was on a repayment basis, instead of an interest-only loan.
Overall, the profile of the remaining interest-only stock became lower risk each year, in terms of borrowers’ debt relative to property value. This is partly down to the effects of house price inflation. Improvement in the loan-to-value profile continues to see over and above inflation levels.
In 2012, there were nearly 900,000 interest-only borrowers with a loan-to-value ratio of over 75%, in comparison, today there are just over 300,000. CML expects this shrinking trend to continue.
The research suggests that a small proportion of interest-only borrowers do not repay in full by the maturity date, however, two thirds of these do repay shortly thereafter.
The CML concluded by highlighting the importance of borrowers, with interest-only mortgages, to engage with lenders at each point of contact, to ensure that any risks are identified and managed at the right stage.