The number of interest-only mortgages has fallen by half over the last eight years to below one million, Financial Conduct Authority data shows, as homeowners move to more conventional loans. 

The watchdog says that the amount of interest-only deals, at 750,000, and part-interest-only home loans, at 245,000, have halved since 2015. 

It adds: “The fall is a result of borrowers moving in greater numbers onto repayment loans or repaying earlier than expected.” 

The FCA says of those remaining on interest-only mortgages the greatest number are set to mature in 2031, 72,000 loans, and 2032, 77,000 deals, with a smaller peak in 2027.

Concern over these types of mortgages hit a peak in 2013, when the FCA labelled interest-only mortgages a “ticking timebomb”.  

It said that around 1.3 million homeowners with such loans may not have enough money to pay off the principal debt when due for repayment and face an average shortfall of more than £71,000. 

The amount of these loans in the UK peaked in 2012 at around 3 million interest-only and part-interest-only mortgages, according to UK Finance data. 

Lenders were encouraged to make an industry-wide commitment to contact all customers with an interest-only mortgage maturing on or before the end of 2020, which has been rolled out into an ongoing programme. 

An FCA poll found that 78% of interest-only borrowers are aware of the need to have a repayment plan in place when they took out the mortgage.    

And that 82% of these borrowers are confident they can repay the outstanding capital at the end of the mortgage term.  

But the FCA says its research “suggests this may be overly optimistic – while 36% of borrowers expected some shortfall, modelling suggests this could be closer to 46%.”   

FCA director of retail banking David Geale adds: “While it is encouraging to see the number of interest-only mortgages reducing faster than expected, with the majority of loans being paid off or transferred to other products, the challenge remains for a significant number of borrowers.   

“Taking an interest-only mortgage can mean lower monthly payments, but borrowers need a plan to repay the outstanding balance when the mortgage comes to an end.” 

The watchdog says it will talk to industry and consumer groups “to discuss the research findings and how lenders can further support borrowers who may not be able to repay all the capital owed at the end of their mortgage term”. 

It adds that since its Consumer Duty rules came into force last month, it “will review its existing guidance on the fair treatment of interest-only borrowers to ensure it is in line with the higher standards set by the Duty. 

“Firms should now be considering how they support their borrowers and meet expectations set out by the Duty.” 

The FCA research was conducted by data group Opinium, which surveyed 1,000 interest-only mortgage holders between 11 and 30 August last year. 

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