Repeated warnings that interest-only mortgages are a "ticking time bomb" appear to be filtering through to the market, with figures out this morning showing a 16 per cent drop in the number of such loans outstanding.
A quarter of the reduction is the result of loans reaching maturity and being redeemed while a further 40 per cent is down to proactive borrowers paying back their loan before it matures, the Council of Mortgage Lenders (CML) said. Just one per cent of first-time buyers took out an interest-only loan in the past year.
Mortgage lenders had maintained their efforts to ensure borrowers had repayment plans in place, and some have scrapped interest-only options amid concerns around the form of lending. The former FCA chief executive Martin Wheatley warned back in 2012 that interest-only loans could be a “ticking time bomb”, with other industry experts continuing the clarion call.
In the two years following Wheatley’s warning there has been a 25 per cent reduction in the interest-only back book, the CML said.