Laura WilesFCA has published a research note analysing its data on the population of regulated interest-only mortgages that existed as at 31 December 2022.
The analysis found that:
- Interest-only mortgages currently make up 9% of all regulated mortgages in the UK;
- 55% of these interest-only mortgages were taken out before the 2008 financial crisis, when lenders were not required to check whether a borrower had a credible repayment plan;
- Peak years when the largest number of interest-only mortgages are due to mature are 2031 and 2032, with a smaller peak around 2027;
- Only a small proportion of interest-only and part-and-part mortgages are past their maturity date. As at H2 2022, this was around 2.2% of the total number of such mortgages; and
- Regions in the south and east of England have a disproportionately large share of the UK’s interest-only mortgage stock.
Since its 2013 research, FCA has made several interventions, including guidance for firms on dealing with interest-only borrowers wo may be at risk of not being able to repay their loan, new rules as part of the Mortgage Market Review and a thematic review on the fair treatment of existing interest-only borrowers.
FCA recognised that rising interest rates can put more pressure on interest-only borrowers, and that market conditions have continued to change since the research was carried out. However, consideration of the impact of interest rates was outside the scope of this research.
FCA also commissioned independent consumer research to consider borrower experiences with interest-only mortgages and their ability repay these at maturity. The research found:
- 31% of participants said the reason they took out an interest-only mortgage was based on advice from a financial advisor or broker;
- 14% of interest-only mortgage holders reported not knowing that they needed a repayment plan, that was separate to interest payments, when they took out the mortgage;
- 7% of participants said they did not know how they would pay the mortgage off, and 3% said they could not afford to;
- Only a quarter of participants recalled their provider being in touch about their mortgage and plans for repaying the capital in 2022; and
- High levels of confidence in paying off mortgages could in some cases have been overly optimistic. More than a quarter suggested that they might have a shortfall at the end of their mortgage term.