One in ten ‘overly optimistic’ on repayment of interest-only mortgages

16th August 2023

New analysis by the Financial Conduct Authority (FCA) has found that one in ten interest-only mortgage holders might be ‘overly optimistic’ about repaying their debt when the time comes.

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%) were aware of the need to have a repayment plan in place when they took out the mortgage.

The research also showed that 82% 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% of borrowers expected some shortfall, modelling suggests this could be closer to 46%. 

Borrowers without a repayment plan are encouraged to speak to their lender to discuss their options. Simply speaking to your lender will not affect your credit rating, and steps can be taken now to provide a greater range of options at the end of the mortgage term. 

David Geale, Director of Retail Banking at the FCA, said “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.”