Interest-only mortgages in decline, even before lates...

New data from UK Finance, the mortgage lenders’ trade body, throws light on how the mortgage and interest rate crisis may be hitting the private rental sector.

UK Finance says there are a total of 2,033,512 buy to let mortgages outstanding with the majority being on fixed rates.

Precise figures shows that 1,346,900 BTL mortgages are fixed rate, and this accounts for 66 per cent of outstanding BTL mortgages.

There are 291,583 Trackers, which adds up to 14 per cent; and there are 362,596 Variable Rate BTL mortgages, equivalent to 18 per cent of the total.

UK Finance analyst James Tatch says: “Overall, the stock of outstanding interest-only mortgages fell by eight per cent in 2022, compared with the position at the end of 2021. As a result of the whole-of-industry collaborative strategy to manage down the size and risk profile of the interest-only book, there are now 924,000 interest-only mortgages outstanding, just over one quarter of the 3.2m that were in place in 2012.”

He continues: “The rate of reduction in future years, both in number and value, will depend in large part on the scheduled maturity schedule of the remaining stock. However, as borrowers continue to redeem on or, in many cases, well ahead of their contractual end of term, we do expect the shrinkage to continue, albeit at a progressively slower rate for the reasons set out above.

“Addressing the still-hypothetical spectre of interest-only borrowers being unable to repay their loans, the internal data we have indicates that interest-only loans maturing last year followed the same pattern as we have seen over the past 10 years, with the vast majority redeeming in full on, or shortly after, their scheduled end date.

“The industry continues to work with that small minority who are unable to do so to find a sustainable way for these customers to repay over time, as it has successfully done for over a decade, as the interest-only book continues to reduce in size and risk.”

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Robert Brown
22 June 2023 07:58 AM

I moved on to interest only mortgages as soon as they came out and since then have never repaid a penny of mortgage debt - but built up £3 million of equity whilst still owing £1 million, on under 2% until mid 2027.

I think interest only mortgages are great if used sensibly and even if not are a much better long term strategy than a lifetime of renting as the debt is based on the original purchase price and reduces by inflation.

My wife's car now costs more than our main or holiday home cost over 30 years ago but was bought cash.

Robert Brown
22 June 2023 15:18 PM

It's better to give your kids spare cash out of earned income which is exempt from inheritance tax than repay a mortgage, which would reduce your debt and increase the amount of inheritance tax paid on the higher value of your estate as it would be without the mortgage liability.