From 1st July the Council of Mortgage Lenders is integrated into a new trade association, UK Finance. For the time being, all UKF mortgage information will continue to be published on this website, and UKF member-only mortgage information will only be available here.

UK Finance represents around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation takes on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. Please go to www.ukfinance.org.uk for wider content and updates from UK Finance.

Last updated: 28 November 2016

At a glance

  • The volume of new interest-only mortgages has declined substantially from its peak in the mid-2000s.  However, most lenders will have borrowers with existing interest-only mortgages for many years to come.
  • In 2014, there were around 2.8 million interest-only mortgages outstanding to home-owners in the UK (excluding buy-to-let, where interest-only is the norm).
  • Lenders undertook a major exercise in 2014 to contact some 720,000 borrowers whose interest-only mortgages mature on or before 2020, to encourage them to discuss their repayment plans. The FCA called it "a prime example of a model demonstrating good conduct outcomes and putting customers first".
  • The FCA undertook interest-only thematic reviews in 2013 and 2014. Its 2014 thematic review focused on small lenders and found firms were engaging well with customers. It identified some areas for development, including strategies for dealing with non-responsive customers and formal and informal contract variation processes.
  • The FCA’s 2013 thematic review on the subject focused on dealing fairly with interest-only customers at risk of being unable to repay; and it issued guidance.

CML position

The CML develops and promotes industry-wide strategies and good practice on working with interest-only borrowers to minimise the number who reach maturity without an adequate repayment plan.

We are committed to leading the industry in working with the regulator to achieve fair outcomes for customers.

Why this is important for lenders

Data analysis (Experian research for FCA) suggests there are several peaks in the coming years when a large number of interest-only mortgages may reach maturity.

This is not a problem if all those customers have adequate repayment plans, but could cause problems for both lenders and their borrowers if a large number of customers are unable to repay their mortgage.

Broadly, the evidence suggests that mortgages maturing in the near future are likely to have adequate or near-adequate repayment plans in the majority of cases.

However, looking further ahead the picture becomes less clear, as a greater number of borrowers who took out interest-only mortgages in the early 2000s may not have sufficient arrangements to repay their mortgage.

It is very important therefore that lenders engage with borrowers as soon as possible to discuss their repayment strategies so any remedial action can be made.

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