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CML reports 16% drop in interest-only loans

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The number of interest-only loans outstanding has fallen by over 16 per cent in the past year, according to the Council of Mortgage Lenders.

At the end of 2014, CML members reported that there were around 1.9 million pure interest-only mortgages outstanding and around 460,000 part interest-only mortgages – 300,000 and 160,000 fewer, respectively, than a year earlier. In the past two years, the number has fallen by over 25 per cent, says the CML.

The trade body says about a quarter of the total reduction is down to loans maturing and being repaid at the end of the term. It attributes a third to full redemption of loans not set to mature until at least 2028, suggesting many borrowers are taking action by remortgaging onto full repayment terms.

Of those loans that have matured, fewer than 16,000 have not yet been repaid.

Lenders contacted about 427,000 interest-only borrowers between April and December 2014 – around 17 per cent of all interest-only borrowers. However, lenders are now actively contacting people whose loans mature beyond 2020.

But response rates have been varied. Around 27 per cent of those contacted whose loans are due to mature between 2021 and 2028 responded, but just 2 per cent of borrowers with loans maturing beyond 2028 have responded.

The CML says that where lenders succeeded in getting customers to respond, 86 per cent of those borrowers had a repayment strategy in place and those who did not “appeared responsive”.

CML director general Paul Smee says: “The continued decline in interest-only mortgages outstanding confirms our perception that many borrowers are firmly on top of this issue, and successfully making plans to manage their loans to ensure they are not faced with a payment shortfall at maturity.

“But as an industry we clearly still have work to do to trigger more borrowers to respond to their lenders’ attempts to understand their intentions and help them plan ahead for the maturity of their loans.”

Anderson Harris director Adrian Anderson says: “Despite repeated talk of interest only being a ticking time bomb, the CML reveals that there are fewer than 16,000 loans outstanding which have matured but not yet repaid or restructured. Clearly, the vast majority of borrowers are taking a look at their repayment strategy and ensuring they have plans in place to repay their mortgage at the end of the term.

“However, there is no room for complacency. It is vital that borrowers don’t stick their heads in the sand but plan ahead and make changes as required, whether that is switching repayment terms, making over payments or extending the mortgage term.”

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