Interest-only mortgages have long been a popular option for certain borrowers in the UK, but recent data from UK Finance reveals a significant shift in this market segment. In 2024, the interest-only mortgage stock fell sharply by 17% over the year, marking a trend that has been ongoing since the end of the financial crisis.
A Shrinking Market
According to the latest analysis, both pure and partial interest-only homeowner mortgages have experienced notable decreases. The number of pure interest-only mortgages dropped by 18.5% in 2024, bringing the total down to 541,000. Meanwhile, partial interest-only (part and part) mortgages fell by 13% to 174,000.
Since the data was first collected in 2012, the total number of interest-only loans has fallen by 78% and their value has decreased by 61%. These statistics highlight a significant shift towards traditional repayment loans over the past 12 years.
Changes in Maturity and LTV Profiles
The number of interest-only loans set to mature by 2027 has also shrunk sharply, falling by 67,000 to 120,000 loans — a decrease of 35.8%. Notably, loans with higher loan-to-value ratios (over 75%) have dropped by 25.7% in 2024, making up just 5% of the total, compared with 36% in 2012.
Insights from UK Finance and Propertymark
Charles Roe, Director of Mortgages at UK Finance, remarked:
“Customers with interest-only mortgages continue to repay on or ahead of schedule. The number of loans at higher LTV ratios has fallen sharply, indicating a reduction in risk across the interest-only sector.”
Toby Leek, President of NAEA Propertymark, added:
“The wider economic turbulence and rising interest rates have impacted the appeal of interest-only mortgages. Today, borrowers must consider the long-term implications and seek tailored help from lenders when necessary.”
Conclusion: Navigating the New Interest-Only Landscape
The sharp decline in interest-only mortgages reflects a more cautious approach by borrowers and lenders alike. As the market continues to evolve, it’s vital for homeowners to stay informed and seek professional guidance when making decisions about their mortgage options.
