Interest-only borrowers fall 13% in under a year
Just over a year ago, lenders targeted around 1m customers with interest-only loans due to mature before 2020 and got a 28% response rate.
Industry-wide strategy causes interest-only to fall 12% – CML Of those, the Council of Mortgage Lenders (CML) research showed the majority said they had a credible plan to repay their loans at the end of the term.
Over a 15-month period up to the end of last year, balances fell on interest-only mortgages from £424bn to £363bn, or by 14%.
The CML said:
“This rate of decline is more rapid than what we would expect “naturally” as a result of borrowers simply paying off their mortgage as they come to the end of the term.”
The trade body suggested “very few new interest-only loans” are being advanced in the residential sector, with the majority in buy-to-let.
“But the rate of decline has accelerated because a proportion of borrowers are taking active steps to make sure they pay off their capital, including switching,” it said.
CML research showed equity held by interest-only mortgage-holders had increased, largely due to property price inflation, reducing lender and borrower risk exposure to high LTV loans.
In May 2013, the lending industry made a commitment to contact within a year all interest-only borrowers with a mortgage due to mature before the end of 2020.
“The aim of this exercise has not been to force borrowers to take action against their wishes, but to ensure that they are aware of their mortgage repayment position and have an opportunity to act if necessary,” said the CML.
Firms with the best response rates tended to adopt a variety of methods for contacting borrowers. Lenders were also more likely to get a response when they sought action from customers, effectively by requiring them to do something, said the trade body.
Around 90% of firms have a written policy in place for dealing with interest-only customers, which has been approved by senior management.
Around three-quarters of these firms have fully implemented that policy.
At the CML’s interest-only conference last week, FCA chief executive Martin Wheatley said:
“What I am particularly pleased with is how industry, regulator and consumer have come together to address this problem as one in a collaborative way. It’s too soon to declare success, but these are encouraging findings.”