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Interest-only ticking timebomb is being defused

Brokers have welcomed new figures showing a sharp decline in the number of interest-only loans over the past year.

Over the past two years, the total number of interest-only loans outstanding has fallen by over a quarter, according to the Council of Mortgage Lenders (CML).

This includes a 16% reduction in the number of loans over the past year alone.


The new follows a recent warning from Citizens Advice that the interest-only crisis is a "ticking time bomb" and up to one million homeowners face a shortfall on their loans at maturity.

CML figures show there were around 1.9 million pure interest-only mortgages outstanding at the end of last year, and another 460,000 part interest-only mortgages.

This was a drop of 300,000 and 160,000 respectively over just one year.

The CML said that a quarter of this reduction was down to natural attrition as loans matured and were repaid.

Around a third are due to full redemption of loans that were not set to mature until at least 2028, suggesting that many borrowers are taking action well before problems could arise.

This also suggests that a significant group of borrowers are successfully remortgaging onto full repayment terms without falling foul of new affordability rules, the CML said.

Of those loans that have matured, only 16,000 loans have not yet been repaid or restructured.

CML director general Paul Smee said that while the figures are good news, there is no room for complacency. “The continued decline in interest-only mortgages outstanding confirms our perception that many borrowers are firmly on top of this issue.

“But as an industry we clearly still have work to do to trigger more borrowers to respond to their lenders' attempts to understand their intentions and help them plan ahead for the maturity of their loans.”

Adrian Anderson, director of mortgage broker Anderson Harris, said: “Despite repeated talk of interest only being a ticking time bomb, there are fewer than 16,000 loans outstanding which have matured but not yet repaid or restructured.

“Clearly, the vast majority of borrowers are taking a look at their repayment strategy and ensuring they have plans in place to repay their mortgage at the end of the term.”

Anderson said borrowers mustn't stick their heads in the sand but should switch repayment terms, make overpayments or extend their mortgage term if necessary.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said the clampdown on interest-only mortgages after the financial crisis was "draconian" but attitudes have softened lately.

“NatWest is offering wealthier customers interest-only mortgages from this week, the first time it has done so since December 2012.

“There is clearly demand for interest only from high net worth borrowers so we expect other lenders to follow suit, giving customers more choice and flexibility in how they repay their mortgage.


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