Some lenders will also require a minimum income, sometimes as much as £75,000. Others, like Halifax, where a borrower is using stocks and shares Isa as their repayment vehicle, will want to see that the Isa has adequate funds right now to repay the interest-only element of the lending.
If the borrower is using their pension as the repayment vehicle, they typically need to have a minimum projected fund value of £400,000 and the lender would look to use a maximum of 15 per cent of that.
One of the other trends Mr Boulger has seen over the last two or three years is where lenders say they will offer up to 75 per cent LTV; this is split between 50 per cent on interest-only and 25 per cent on a repayment basis.
According to data from UK Finance the interest-only book has shrunk and it has also become healthier, according to the mortgage body, in terms of the equity position of borrowers.
UK Finance data shows:
- The interest-only book now stands at 1.7m mortgages and is worth £250bn. This is a little over half the number it was just six years ago.
- In 2012 over 900,000 pure interest-only mortgages – 36 per cent of the total – had an LTV of 75 per cent or greater.
- Last year this had fallen to just 174,000 mortgages, or 13 per cent of the total.
As lenders have worked with borrowers to rectify the situation, In 2014, when these contact programmes first began as a coordinated industry initiative, although many lenders were already operating their own programmes ahead of this, responses rates were around 16 per cent for contacts to borrowers with pre-2020 maturities, and ten per cent overall.
Number of interest-only mortgage homeowners outstanding
Source: UK Finance
James Tatch, principal, analytics at UK Finance, says: “Four years later, the data suggests the industry has built on best practice, such that contacts response rates have approximately doubled for near-term maturities, and trebled overall.
"While there is still plenty of room for improvement, the industry is making really good progress in engaging successfully with more and more borrowers.”
There are continuing redemptions of interest-only mortgages, both on and ahead of schedule, to reduce the size of the remaining book much faster.
There are material reductions in numbers of interest-only mortgages at higher LTVs, so that fewer of those remaining interest-only borrowers are constrained in their options by insufficient equity.
And lenders are seeing more success in engaging with their interest-only customer base to assess repayment plans and, in cases where there are none, put viable plans in place.
Room to improve
However, despite these continuing improvements, there are a small number of interest-only mortgages that do not redeem in full on their maturity date. Last year there were 34,000 such “term-expired” mortgages.
For the minority of cases where the borrower cannot redeem in this way, lenders work through a range of options to allow the borrower to repay the loan.
