The continued decline in interest-only mortgage balances reflects a healthier market and changing borrower needs, according to Phoebus Software.

New figures from UK Finance show the stock of interest-only mortgages continued to shrink during 2025, with both pure interest-only and part-and-part loans falling year-on-year.

At the end of 2025, there were 445,000 pure interest-only homeowner mortgages outstanding, down 17.7% from 2024. The number of part-and-part mortgages also fell by 10.3% to 156,000.

Overall, the total stock of interest-only mortgages has fallen by 81% in volume and 65% in value since 2012, when UK Finance first began collecting the data.

The figures also show a continued reduction in higher-risk lending. Interest-only loans with loan-to-values above 75% fell by 26.9% during 2025 and now account for just 4% of all interest-only mortgages, compared with 36% in 2012.

The number of interest-only mortgages due to mature by 2027 also halved during the year, falling by 60,000 loans to 60,000.

Commenting on the figures, Richard Pike, sales and marketing director at Phoebus Software, said: “Interest-only mortgages have often attracted criticism over the years, but the reality is that they remain an entirely appropriate solution when used responsibly and supported by a credible repayment strategy.

“The steady reduction in the stock of interest-only lending reflects not only the work lenders have done to engage with borrowers, but also the changing shape of the market itself.

“What we are increasingly seeing is a shift towards later life lending and more flexible borrowing into retirement. A growing number of lenders are recognising that many older borrowers have built up substantial equity in their homes and have the income and means to continue borrowing safely beyond traditional retirement ages.

“Borrowing into retirement is often a lower-risk option than forcing borrowers to repay capital through the sale of their home, particularly when loan-to-values are modest and there is significant housing wealth available.

“For many customers, it provides continuity, flexibility and a better outcome than downsizing or facing a cliff edge at the end of their mortgage term.

“The UK Finance figures demonstrate just how much progress has been made since the financial crisis. The remaining interest-only book is far healthier, with lower loan-to-values and fewer loans approaching maturity without a plan in place.

“At the same time, the growth of later life lending and retirement interest-only products is providing borrowers with more options than ever before.

“Ultimately, this isn’t the death of interest-only lending. It’s the evolution of a market that is adapting to longer lives, changing retirement patterns and the reality that housing wealth will play an increasingly important role in helping people maintain their financial wellbeing in later life.”