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Home > News and Reports > The state of outstanding mortgages
Oct 20, 2018
The state of outstanding mortgages

Since the beginning of the financial crisis in 2008, the number of UK homeowners with interest-only mortgages who have decided to clear the debt through the use of their pensions has risen by more than 30 per cent.

The staggering figure surfaces from data collected by the British Bankers Association, which plans on publishing a wide range of lending statistics at the end of the month.

The figures clearly display that the total number of outstanding mortgages contracted at the onset of the crisis in 2008, and did not begin growing again until 2012.

From this total number of outstanding mortgages, interest-only mortgages, which are loans in which borrowers must arrange other plans to take care of their capital mortgage debt upon the completion of the loan term, fell noticeably from 3.6 million in 2007 to 2.6 million in 2012.

This is likely due to an increasing number of borrowers looking to benefit from lower mortgage interest rates by transferring their interest-only loans to a capital repayment basis. As the UK’s financial watchdog, the Financial Conduct Authority has kept a close eye on the interest-only mortgage issue and has required numerous lenders to contact interest-only buyers and ask them how they plan on paying off their mortgage capital at the end of the term.

Borrowers with “pension-backed” interest-only mortgages were the only interest-only mortgage borrowers to actually grow in number during the period.

Previously unheard of, pension-backed mortgages did not begin being sold in small numbers until the late 1990s. Typically, they only suited wealthier homebuyers with substantial pension provisions.

Some commentators have suggested that the BBA figures resulted from lenders encouraging interest-only borrowers to declare the way that they plan on paying off their mortgage. For many people, their pension was the only substantial asset that could be used.

Overall, however, the data was rather positive. According to the BBA, the repossession numbers have nearly been cut in half, falling from 21,173 in 2009 to only 12,145 at the end of 2012. Remarking on the figures, the BBA’s chief executive Anthony Browne said, “This is the first time home loan figures have increased since the onset of the financial crisis.”

Browne added that consumers are just now “rediscovering their credit appetite,” and he expects the 2018 figures to portray further growth, thanks in large part to the government’s Help to Buy and Funding for Lending schemes.

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