Lenders’ interest-only books shrinking ahead of plan

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Lenders’ interest-only back books are shrinking ahead of schedule, according to Leeds Building Society research.

Nearly £16bn of interest-only mortgages will mature this year, with £50bn to be paid off by 2020, Leeds says.

The £50bn figure represents more than 450,000 interest only mortgages in the UK.

It makes up more than one-third of the total outstanding UK interest-only mortgage stock, currently standing at 1.6 million loans.

The lender carried out research with the Centre for Economics & Business Research to find how interest-only borrowers handle maturing loans.

Leeds Building Society chief commercial officer Richard Fearon says: “We firmly believe there’s a place for interest-only alongside repayment mortgages.

“It is pleasing to see from our research that many borrowers are addressing their individual repayment strategies and that the interest-only back book is shrinking ahead of schedule.

“This is testament to the hard work of the lenders, regulators and the Council of Mortgage Lenders for raising awareness among borrowers of the need for them to consider how they will repay their loan at the end of the term.”

Cebr used CML data to predict the pace of redemptions based on expected consumer behaviour and examine how much capital is expected to be paid off over the coming years.

The research says the shift is partly down to lenders contacting borrowers about repayment plans, the low interest rate environment helping borrowers make decisions and wide product choice on the market.

Earlier this month the CML found the risk of interest-only loans is falling year-on-year, despite 300,000 such mortgages not being fully paid back at their term end since 2011.