The number of homeowner interest-only mortgages outstanding fell last year, according to UK Finance.
Interest-only deals allow borrowers to make monthly payments that just cover the interest on the money borrowed, with the full amount due at the end of the term.
UK Finance said 445,000 pure interest-only homeowner mortgages were outstanding at the end of 2025, 17.7% than in 2024.
In addition there were 156,000 partial interest-only homeowner mortgages outstanding at the end of 2025 – a 10.3% fall compared with 2024.
The total interest-only mortgage stock has reduced by 81% in number and 65% in value since 2012, when the data was first collected, UK Finance said.
James Tatch, head of analytics at UK Finance, said: “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.
“Lenders’ proactive communications strategies continue to ensure that those with historic interest-only loans have plans and ability to repay, with tailored help available for those who do not.
“The interest-only book has shrunk in size each year since the end of the financial crisis and is now less than one fifth of that seen in 2012, when these data were first collected.
“The remaining interest-only book is also in a far stronger position, with over two-thirds of customers having a loan-to-value ratio of less than 50%.
“This gives a much greater range of options if they cannot immediately repay their loan when it matures.”
He added: “Although the overall stock of outstanding interest-only loans continues to decline, we have seen a small increase in lending on a part-and-part basis.
“This signals its potential as a tool to help plug the affordability gap, where appropriate for the customer’s circumstances.”
The Financial Conduct Authority (FCA) recently set out proposals which could make it easier for some people to access a mortgage, which could include widening access to interest-only and part interest-only lending and making it easier for borrowers to raise mortgage finance in later life.
In the past, interest-only loans have been controversial due to some people not having the means to pay the original mortgage loan back.
The FCA consultation document said that before the financial crisis in 2008, interest-only lending was used to reduce monthly mortgage payments but underwriting and sales standards were “poor”.
In 2014, stricter affordability requirements were introduced as part of the Mortgage Market Review, which included the need for lenders to ensure there was a credible repayment strategy to repay the capital at maturity.
Sarah Coles, head of personal finance at AJ Bell, said: “The gradual decline of interest-only was nailed on when the rules were tightened up and borrowers needed a credible repayment plan alongside their interest-only deal.
“It meant new interest-only mortgages switched from being mainstream.”
She added: “The good news is that people are paying these mortgages off faster than had been expected, and the bulk of these deals are now held by people who have loan-to-value of 50% or less in their home, which means they’ll have more choices when they get to the end of the deal and need to repay.
“If you’re still on this kind of deal, your lender will have been in touch to check you can repay when the time comes – and will have offered support if you can’t.
“It’s worth keeping an eye on your plans though, so that if things change and it looks like there might be a shortfall when the loan matures, you and your lender have time to put a plan B in place.”
Read MoreInitiative helping people to access banking services is expanded to more banks
FCA aims to help more people such as first-time buyers to access mortgages
Inflation relief could ‘trigger a mortgage price war’ as interest rate fall predicted
Bank set to hold interest rates after steady inflation and Iran peace deal
UK inflation rate remains unchanged at 2.8% despite soaring air fares
Why has inflation remained flat and where will it go from here?
