Interest-only mortgages comprised 20% of new business introduced in Q2 2019, down from 28% is Q2 2007 but significantly higher than the 15% recorded five years ago.
Meanwhile, repayment mortgages made up almost all of the remaining proportion of new business in Q2 2019, rising from 60% of business in Q2 2007 to 79% this time round.
The latest figures from Paragon’s quarterly Financial Adviser Confidence Tracking Index (FACT) suggest interest-only mortgages continue to offer a credible repayment strategy.
Interest-only mortgages rose in popularity at the beginning of the financial crisis in 2008 as demand for endowment mortgages fell.
However, concern that interest-only products were allowing customers to purchase otherwise unaffordable properties led to tougher checks around affordability and repayment plans as part of the Mortgage Market Review (MMR) in 2014.
Despite the rise in interest-only mortgages in the latest FACT survey, regulated providers are working to reduce the overall number, value and average loan-to-value (LTV) ratio of the UK’s interest-only mortgage stock.
In June this year, UK Finance confirmed that interest-only mortgage stock had fallen by 54% in number from 3.2 million to 1.5 million and 43% in value from £399 to £299 billion since 2012.
“While repayment mortgages are now by far the most popular type of mortgage, interest only continues to have an important part to play in the post-MMR environment.
John Heron, managing director of mortgages at Paragon, said: “For customers who can demonstrate appropriate provision for paying back the capital, interest only mortgages provide a useful vehicle for controlling costs whilst allowing customers optionality to invest and build capital elsewhere.”
“Higher LTV requirements and closer scrutiny of repayment plans however mean interest only is now a much smaller part of the overall market.”