Interest-only homeowner mortgages fell 6.9% to 702,000 last year compared to 12 months before, says UK Finance, as lenders look to “manage down the size and risk profile” of these loan books.  

The banking trade body adds that partial interest-only home loans tumbled by 11.9% to 222,000 over the same period.   

The total interest-only mortgage stock has been slashed by 71% in number and 56% in value since the association first began collecting this data in 2012, when there were around 3.2 million of these loans in the UK.  

It points out that a series of “shocks to pension and endowment funds through the 1990s and 2000s shone a spotlight on the repayment risk inherent in interest-only lending”.  

Since then, lenders, overseen by the regulator, have reduced this type of lending.   

Last year there were 33,000 new interest-only loans granted worth £12.2bn, which represents 3% of total new mortgage lending, the body says.  

In 2021, the stock of outstanding interest-only mortgages fell by 15%.  

But the body says the easing of the decline last year is because “having already shrunk by nearly three quarters in just ten years, the capacity to maintain this rate diminishes each year as the book reduces”. 

Interest-only homeowner mortgages have long been a feature of the UK market, with many handed out by lenders in the 1980s and 1990s.  

UK Finance director of mortgages Charles Roe says: “Even as cost-of-living and rate pressures built through 2022, interest-only mortgage customers continued to repay their loans, many well ahead of the scheduled maturity date.  

“Lenders continue to refine their targeted programmes to reach out to their interest-only customers, yielding positive results in ensuring borrowers are on track to repay.   

“The small number of borrowers who do not repay immediately upon maturity remains very low, and data indicate the vast majority of these do in fact repay in full over the first few months following the end of term.”