The number of outstanding homeowner interest-only mortgages decreased in 2025, according to data from UK Finance. These loans allow borrowers to pay only the interest each month, with the full principal due at the end of the term.
Decline in Interest-Only Mortgages
UK Finance reported that 445,000 pure interest-only homeowner mortgages were outstanding at the end of 2025, a 17.7% drop from 2024. Additionally, 156,000 partial interest-only mortgages were outstanding, representing a 10.3% decline compared to the previous year.
The total interest-only mortgage stock has fallen by 81% in number and 65% in value since 2012, when data collection began. James Tatch, head of analytics at UK Finance, stated: “In 2025, customers with interest-only mortgages continued to pay on or ahead of schedule, with 114,000 fewer mortgages on interest-only terms at the end of the year than at the start.”
Lender Communication and Repayment Strategies
Lenders have maintained proactive communication strategies to ensure that those with historic interest-only loans have plans and the ability to repay. Tatch added: “The interest-only book has shrunk each year since the financial crisis and is now less than one fifth of its 2012 size. The remaining book is in a stronger position, with over two-thirds of customers having a loan-to-value ratio below 50%, giving them more options if they cannot immediately repay at maturity.”
Potential for Part-and-Part Lending
Although the overall stock of interest-only loans continues to decline, there has been a small increase in part-and-part lending. Tatch noted: “This signals its potential as a tool to help plug the affordability gap, where appropriate for the customer’s circumstances.”
Regulatory Changes and Historical Context
The Financial Conduct Authority (FCA) recently proposed measures to widen access to interest-only and part interest-only lending, making it easier for borrowers to raise mortgage finance in later life. Historically, interest-only loans have been controversial due to some borrowers lacking the means to repay the original loan. The FCA consultation document stated that before the 2008 financial crisis, interest-only lending was used to reduce monthly payments but underwriting and sales standards were poor.
In 2014, stricter affordability requirements were introduced under the Mortgage Market Review, requiring lenders to ensure credible repayment strategies for capital repayment at maturity.
