The number of interest-only (750,000) and part-interest-only (245,000) mortgages has halved since 2015, new Financial Conduct Authority analysis has found.
The fall is a result of borrowers moving in greater numbers onto repayment loans or repaying earlier than expected.
Of those remaining, the greatest number of interest-only mortgages are set to mature in 2031 (72,000) and 2032 (77,000), with a smaller peak in 2027. This means borrowers without a repayment plan still have time to act and reduce at least some of their outstanding capital by the end of their mortgage.
Consumer research, commissioned by the FCA, found the vast majority of borrowers (78 per cent) were aware of the need to have a repayment plan in place when they took out the mortgage.
The research also showed that 82 per cent of borrowers were confident in their ability to repay the outstanding capital at the end of the mortgage term.
However, the research suggests this may be overly optimistic – while 36 per cent of borrowers expected some shortfall, FCA modelling suggests this could be closer to 46 per cent.
David Geale, director of retail banking at the FCA, says: ‘Whilst it is encouraging to see the number of interest-only mortgages reducing faster than expected, with the majority of loans being paid off or transferred to other products, the challenge remains for a significant number of borrowers.
‘Taking an interest-only mortgage can mean lower monthly payments, but borrowers need a plan to repay the outstanding balance when the mortgage comes to an end. If you have an interest-only mortgage and are unsure if your current plan is sufficient, speak to your lender as soon as possible, to discuss your options.’
The FCA says it ill now be engaging with industry and consumer groups to discuss the research findings and how lenders can further support borrowers who may not be able to repay all the capital owed at the end of their mortgage term.
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Lenders need to plan to allow borrowers to extend their mortgage terms if necessary.
Apart from RAAC built houses, mortgaged property is likely to survive several borrowers' lifetimes, so what's the panic about ensuring mortgages get paid off if borrowers can still afford the interest payments?
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