Interest-only mortgages have hit a five-year low, falling below 10% of the market, analysis of FCA data by homebuying platform OneDome shows.
847,077 interest-only mortgages were outstanding in the second half of 2024 – a 9.5% share of the mortgage market, a Freedom of Information request to the FCA reveals.
This was down from 1,122,469 in the first half of 2020, marking a 24.5% fall in just under five years.
The number of part interest-only, part repayment mortgages also fell sharply over the same period, from 302,848 in the first half of 2020 to 208,825 in the second half of 2024 — a 31% drop.
The decline across both product types reflects a broader move away from flexible repayment types towards full-capital repayment models.
The number of interest-only mortgages has declined in recent years due to tighter lending rules introduced after the 2008 financial crisis.
Buyers wanting an interest-only mortgage now face stricter affordability checks and a need to show they have a credible plan for repaying their loan.
This has significantly reduced the availability and appeal of these mortgages, especially for first-time buyers and those without substantial assets or ways of repaying the capital at the end of the term.
At the same time, lenders have encouraged existing borrowers to switch to repayment options, particularly as interest-only loans near maturity.
With rising interest rates and growing awareness of the risks, borrowers have increasingly opted for repayment mortgages.
If the current rate of decline continues unchecked, the interest-only mortgage could become a thing of the past by 2039, OneDome says.
Babek Ismayil, founder and CEO of OneDome, commented: “Interest-only mortgages became an increasingly popular option as buyers took the opportunity to stretch their budgets as far as possible.
“But it looks like the honeymoon is over, and the steady decline we’re seeing is a symptom of a market that has become more cautious and regulated.
“Lenders and home-buyers are increasingly conscious of the need for a plan to repay the loan capital, and interest-only mortgages are falling further out of favour.
“The change is a positive step, and it shows the need to keep thinking about how we think about home finance.
“The current transaction process is disjointed and that is why we are committed to changing the way people buy property.
“The only way to speed up the process is through better sales coordination and project management, and that’s where new technology can help deliver results.
“The entire transaction process should be under one roof. With greater innovation and flexibility, we can reduce transactions down to a matter of days instead of weeks or months.”
