Numbers of interest-only mortgages in the UK has halved in the past eight years but there remains a significant number of borrowers still on these deals and almost half of them are not confident about their ability to repay all of the outstanding capital.
There are currently around 750,000 interest-only home loans currently outstanding and 245,000 part-interest-only mortgages, according to analysis by the Financial Conduct Authority.
The big fall since 2015 reflects borrowers moving in greater numbers onto repayment loans or repaying earlier than expected.
Around 149,000 of the outstanding mortgages are set to mature in 2031 and 2032, with the next largest peak in 2027.
While almost 80% of borrowers were aware of the need to have a repayment plan in place when they took out the mortgage, most those that do not have one still have time to act and reduce at least some of their outstanding capital by the end of their mortgage, the FCA said.
Also, while 82% of borrowers were confident in their ability to repay the outstanding capital at the end of the mortgage term, the research suggests this was overly optimistic.
Around 36% of borrowers expected some shortfall but the FCA's modelling suggests this could be closer to 46%.
“Whilst it is encouraging to see the number of interest-only mortgages reducing faster than expected, with the majority of loans being paid off or transferred to other products, the challenge remains for a significant number of borrowers," said David Geale, the FCA's director of retail banking.
“Taking an interest-only mortgage can mean lower monthly payments, but borrowers need a plan to repay the outstanding balance when the mortgage comes to an end. If you have an interest-only mortgage and are unsure if your current plan is sufficient, speak to your lender as soon as possible, to discuss your options.”
The FCA said it would talk to lenders and consumer groups to work out how to support those borrowers who may not be able to repay all the capital owed.
Borrowers without a repayment plan were encouraged to speak to their lender to discuss their options, with a greater range of options now available at the end of the mortgage term.