UK Finance: 2020 is not a peak in interest-only maturities

Jessica Nangle

February 7, 2020

This year is not a peak in interest-only maturities according to UK Finance.

In a blog by James Tatch, principal of analytics at UK Finance entitled “Interest-only mortgages: 2020 vision”, Tatch explains that their data shows that 2020 signals the end point for maturities of the first of three different tranches of interest-only loans.

Tatch describes how, following the approach taken by the industry and its customers to “address potential repayment issues ahead of maturity”, only half the number of loans are now set to mature this year compared to when it was first measured in 2012.

UK Finance is currently collecting data to update this position as at December 2019 and expect to see a further reduction below the 60,000 which was recorded at the end of 2018.

If this number does reduce, UK Finance still expect “something approaching” 60,000 interest-only mortgages to mature this year.

According to Tatch, UK Finance’s Regulated Mortgage Survey (RMS) shows around 41,000 regulated loans maturing this year, which is 65% of their aggregate survey.

Their data also shows that a majority of borrowers have a low current LTV and are in a strong equity position.

Almost half reportedly have under 25% LTV and three quarters have less than 50% LTV.

These borrowers owe £104,000 on average but have equity of £387,000.

Tatch goes on to say: “Based on the experience of maturing interest-only loans to date, we can expect that the vast majority of loans maturing this year will also repay in full and either on time or within a few months thereafter.

“However, the greater focus is on those who may not be in a position to repay immediately.

“It is therefore a positive finding that three-quarters of these 2020 maturities have these very comfortable equity stakes, which offers options should they find themselves unable to repay the loan from other sources.”

Borrowers with loans maturing this year reportedly have a comparatively mature age profile according to their research.

Almost half of borrowers with loans maturing this year are over-65 and have more than £100,000 remaining on their mortgage.

Tatch adds: “We expect the vast majority of these will repay on schedule.

“However, for those that do not, it is a further positive sign that, for those we can fully profile, over half have less than 50% current LTV and, on average, over £500,000 of equity.”

The blog concludes that understanding the risks and options within the interest-only back book “allows mortgage lenders to segment their books and to prioritise and personalise their contact programmes accordingly”.

Tatch furthers that industry will continue the proactive approach seen in recent years to work with interest-only customers through 2020 to “ensure they are aware of the need to repay and have the means to do so”.

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