UK Finance has reported that the number of interest-only mortgages fell by 13.1% in 2018 compared to the previous year.
It means the total number of pure interest-only mortgages has now fallen by 54% in the past seven years, from 2.5 million in 2012 to 1.23 million in 2018.
At the same time, the number of interest-only mortgages due to mature in 2019 and 2020 fell significantly (41.9%), falling from 217,000 to just 126,000.
UK Finance said this latest reduction follows an industry-wide commitment by regulated mortgage lenders to contact all interest-only borrowers with loans scheduled to mature before the end of 2020, to ensure they are on track to repay their loans or work out an alternative solution.
UK Finance has also produced a consumer leaflet to raise awareness of the potential options available to interest-only borrowers, including switching to a full repayment mortgage or paying back their loan in full ahead of schedule.
In addition, there were 360,000 partial interest-only (part and part) homeowner mortgages outstanding at the end of 2018, 16.1% fewer than in 2017 and down from 705,000 in 2012.
The number of interest-only loans at higher (over 75%) loan-to-values fell by 13.8% in 2018. Loans at these higher LTVs now make up 13.4% of the total, compared to 36% in 2012.
Meanwhile, the number of interest-only loans set to mature by 2020 shrank by 91,000 in 2018 to just 126,000 loans, a fall of 41.9% compared to 2017.
Jackie Bennett, director of mortgages at UK Financem said: “The number of outstanding interest-only mortgages has more than halved in the past seven years, and it is particularly encouraging to see the continuing rapid contraction in the numbers that were set to end on or before 2020, the first anticipated peak in maturities.
“As we approach 2020, this reduction in numbers represents an industry success story for regulated providers, as lenders continue to improve their contact programmes with borrowers and ensure plans to repay are on track. However, it is as important as ever that we keep up the momentum through to 2020 and beyond, to make sure all borrowers are aware of the need to repay and have viable means to do so.
“For the small minority whose repayment plans do not appear sufficient, it is also very positive news that most interest-only loans now have strong equity stakes. This greater equity means borrowers are likely to access more alternative repayment options should they need them. We would encourage interest-only customers to follow the advice in our consumer leaflet and contact their lender as soon as possible, to discuss the potential solutions available to them.”