Mortgage Market Update: Interest-Only Stock Down 73% Since 2012

The number of interest-only mortgages has dropped each year since the end of the financial crisis, with a significant 73% reduction in stock since 2012, according to the latest data from UK Finance. This decline is largely attributed to borrowers redeeming their mortgages on or ahead of schedule.

Interest-only mortgage stock has plummeted

In 2023, there were 664,000 pure interest-only homeowner mortgages outstanding, a 5.4% decrease from the previous year. Additionally, 200,000 partial interest-only (part-and-part) homeowner mortgages were outstanding, representing a 9.9% drop.

The total interest-only mortgage stock has now reduced by 73% in number and 56% in value since 2012, when the data was first collected. Although the overall interest-only stock continues to fall, the number of interest-only loans at higher (over 75%) loan-to-values rose by 2.9% in 2023.

Interest-only loans at higher LTVs on the rise

Charles Roe, director of mortgages at UK Finance, commented: “Although the mortgage market saw difficult conditions in 2023, most interest-only borrowers continued to repay on or ahead of schedule. The regular communications from lenders will have helped ensure interest-only borrowers remained on track to repay.”

Summer of Savings: Mortgage Rates Slashed

In a boost for borrowers, major lenders such as NatWest, Barclays, and HSBC have cut mortgage rates by up to 0.31%. This move is expected to trigger a wave of rate reductions across the industry, with experts predicting a “summer of savings” for homeowners.

Mortgage rates slashed by major lenders

The rate cuts come as markets expect the Bank of England to reduce its base rate in August, which would likely lead to further decreases in mortgage rates. Borrowers are advised to take advantage of the current rate environment and consider fixing their mortgage deals to avoid potential rate rises.

First-Time Buyers Face Higher Mortgage Payments

Analysis suggests that first-time buyers can expect to pay around £400 more per month for their mortgage than five years ago. The average first-time buyer mortgage payment has risen by 61% since 2019, from £667 to £1,075 per month.

First-time buyers face higher mortgage payments

The increase in mortgage rates and house prices has contributed to the rise in monthly mortgage costs. However, experts predict that a base rate cut could provide some relief for first-time buyers.

Tips for First-Time Buyers

• Consider extending your mortgage term to lower monthly payments
• Look for cheaper homes for sale to reduce the amount you need to borrow
• Take advantage of mortgage rate cuts to secure a better deal
• Use a mortgage comparison tool to find the best rates
• Factor in fees for the mortgage, including arrangement fees and valuation fees

The mortgage market is constantly evolving, and borrowers need to stay informed to make the most of the current rate environment. With the predicted “summer of savings” and potential base rate cut, now may be an ideal time to review your mortgage deal and consider switching to a better rate.