The number of outstanding interest-only mortgages declined sharply last year, according to UK Finance, falling by nearly a fifth.
Interest-only mortgages, as the name suggests, involve borrowers only paying back the interest each month, rather than any of the capital. The capital must be repaid at the end of the mortgage term, so borrowers need to have a clear repayment strategy in place, such as savings, investments or other assets.
By the end of 2024, there were 541,000 interest-only mortgages remaining, the trade body said, a fall of 18.5% compared to 2023. Part and part interest-only mortgages, where borrowers pay only the interest on part of the loan, and both interest and capital on the rest, also fell over the year. There were 174,000 part and part mortgages still outstanding at the end of the year, down 13% compared to the previous year.
Interest-only mortgages are often popular with homeowners who want lower monthly payments. Some mortgage deals allow overpayments, enabling borrowers to reduce their debt during the mortgage term. However, you must be confident that the repayment plan you have chosen will produce enough to repay any remainder.
Since UK Finance first started recording interest-only numbers in 2012, and despite sharps increases in rising living costs, the overall number of interest-only mortgages has fallen by a massive 78%, and by 61% in value. Many homeowners prefer the peace of mind that repayment mortgages offer, as both interest and capital will be fully paid off by the end of the mortgage term. The number of interest-only mortgages set to mature by 2027 shrank by 67,000 in 2024 to 120,000 loans, a fall of 35.8%.
The number of interest-only loans at higher loan-to-values of 75% or more fell by a quarter (25.7%) in 2024, with these loans now making up only 5% of the total. This is down from 36% in 2012.
