One year on from the agreement between the CML and the Financial Conduct Authority, UK’s financial watchdog, for lenders to contact all borrowers with interest only mortgages due to mature before the end of 2020, the CML says there has been a significant reduction in outstanding interest only mortgage debt.
Based on a CML survey representing around 96% of the market, at the end of 2013 there were an estimated 2.2 million pure interest only loans outstanding, and a further 620,000 part interest only, part repayment mortgages outstanding on lenders' books.
Compared to 2012 this represents a fall of around 300,000 or 12% of pure interest only mortgages and around 90,000 or a 13% fall in part mortgages.
The CML said that there has also been a positive set of changes in the loan to value profile of outstanding interest only mortgages. Two thirds of outstanding interest only mortgages have LTV ratios of less than 75% and the vast majority of these are not due to mature until after 2020.
A large number of loans would have moved into a lower LTV band as a result of house price inflation alone. However, borrowers are taking additional action to reduce their mortgage balances, as the effect of house price inflation alone would not have resulted in the improvements in outstanding LTVs that have been seen over the past year.
Indeed, the number of loans in every LTV band below 75% would have seen an increase on the basis of house price inflation alone as loans moved down from higher LTV bands, but, in fact, every band saw a decrease.
Lenders have been undertaking a variety of activities to encourage their customers to take positive action to manage their interest only mortgages. Through letters, telephone contact, online information, and some face to face communications, lenders are seeking to help customers take whatever actions best serve their long term interests.
Although there is likely to be a cohort of borrowers who may still find it difficult to put in place adequate plans to repay their interest only mortgages in full and on time, the number of such borrowers is likely to be relatively modest.
‘The regulator, mortgage lenders and the CML are collaborating very effectively so far to help interest only borrowers manage their loans and avoid surprises when their loans mature. This work will continue, not just over the next year but over the long term,’ said CML director general Paul Smee.
‘For the minority of borrowers who cannot reach full repayment by maturity, lenders are fully committed to helping customers reach the best outcome available for their circumstances,’ he pointed out.
