Recently, a casual chat with friends about savings spiralled into a lively debate about cashback credit cards, travel insurance perks, and the best interest rates for our hard-earned money.
It got me thinking about financial empowerment and the cultural shift towards smarter money management. Naturally, my thoughts turned to my specialist subject: mortgages.
A couple of decades ago, mortgages weren’t just a means to an end; they were flexible tools supporting homeowners’ financial goals. Offset arrangements, capped rates, and interest-only mortgages allowed borrowers to strategise, balancing debt against assets to build long-term financial resilience. Yet, today, we’re at risk of losing these essential tools, particularly interest-only products, which are declining sharply.
Our analysis of the latest UK Finance data reveals that the number of interest-only mortgages has fallen 70% in the last decade, now representing just 8% of the residential mortgage market. If this trend continues, interest-only mortgages could shrink to a mere 2% of the market by 2034. This would mark the effective extinction of a product that has historically played a vital role in helping homeowners navigate their financial journeys.
Regulatory changes and lenders’ evolving risk appetites have certainly driven this decline, but it raises an important question: Are we undervaluing interest-only mortgages as a financial planning tool?
How to support young landlords
Sponsored by BM Solutions
Interest-only mortgages still have a place
In an era in which financial literacy is rising and consumers are demanding greater control over their finances, this product should be far from obsolete. Interest-only mortgages offer flexibility, allowing borrowers greater control of their monthly outgoings, and the opportunity to manage cash flow and plan effectively for the future.
Take the current interest rate shock gripping the nation: many homeowners are seeing their repayments soar as fixed rate deals expire. The Bank of England estimates that 4.4 million mortgage customers will see their payments rise by 2027.
For some, an interest-only option could provide a lifeline, helping them manage their finances without resorting to longer terms or higher monthly costs. Older homeowners with significant equity, for example, could benefit from interest-only arrangements as they transition towards retirement. Meanwhile, for first-time buyers struggling with affordability, these products can open doors that might otherwise remain firmly shut.
The industry should be trying to keep interest-only mortgages alive with features that prioritise flexibility, such as uncapped overpayments, rate reductions as loan to values (LTVs) fall, and the ability to borrow mid-term.
This is not for the sake of tradition, but because these products are an important part of brokers’ and borrowers’ toolkits.
Giving borrowers less choice
The intermediary market has grown consistently over the years, with 84% of all mortgages now introduced through brokers. Consumers trust brokers to deliver not just products, but advice tailored to their unique circumstances. If we strip away tools like interest-only mortgages, how can brokers provide that personalised guidance?
Mortgage broking should not become an exercise in ‘order taking’.
As an industry, we should be championing a return to holistic advice – giving brokers the toolkit they need to support empowered, financially savvy consumers.
We want the future of mortgage lending to be as diverse and dynamic as the homeowners it serves. Let’s not sleepwalk into a world without interest-only mortgages. Let’s bring them back to life.
