What factors drive the sharp decline in interest-only mortgage numbers?
Interest-only mortgages could account for just 2% of the UK’s residential mortgage market by 2034, according to a new analysis of UK Finance data by longer-term lender April Mortgages.
The number of outstanding interest-only mortgages has fallen by 70% over the past decade, dropping from 2.18 million in 2013 to 664,000 in 2023, or 8% of the total mortgage market. Over this period, more than 1.5 million interest-only loans have matured, with borrowers either repaying the loans in full or transitioning to repayment mortgages.
If the current rate of decline continues, April Mortgages forecasts that the number of outstanding interest-only mortgages could fall below 200,000 within the next decade, representing a significant reduction in their market share. On average, the number of interest-only mortgages has decreased by 11% annually since 2013. At this pace, just 184,000 interest-only mortgages are projected to remain by 2034.
“The interest-only market has shrunk to just over one-quarter of its size 10 years ago,” said Rachael Hunnisett (pictured), director of April Mortgages. “Part of this reduction is driven by enhanced regulatory oversight, alongside lenders scaling back or withdrawing interest-only products to align with their own appetites to lend.
“Our projections, based on market trends from the last decade, reveal that interest-only mortgages could make up as little as 2% of all outstanding residential mortgages by 2034. This puts the future of interest-only mortgages in doubt and risks limiting consumer choice at a time when borrowers have proven their ability to meet repayment commitments.”
Amid rising mortgage rates, Hunnisett pointed out that interest-only loans could provide borrowers with more flexibility.
“The interest rate shock that many borrowers are currently experiencing as their fixed mortgage comes to an end highlights why interest-only deals should remain widely available,” she said.
“While interest-only mortgages are not for everyone, they can be advantageous for older homeowners with considerable equity, as well as first-time borrowers wanting to improve their affordability.”
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