90% of interest-only mortgage holders say they have a strategy or strategies in place to repay the capital sum owing on their mortgage at the end of the term, a major study by the Financial Conduct Authority (FCA) has found.

Only 10% say they have no strategy in place to repay their mortgage.

Less than 2.5% of the population say that they do not have a strategy in place to repay the mortgage and were unaware at mortgage inception that they needed such a strategy.

Most interest-only mortgage holders (72%) have one or two types of repayment strategy in place with a small proportion (16%) relying on a wider range (four or more).

The most common repayment strategies are around savings and investments. The most used repayment strategy is an endowment policy, cited by 32%. Just over a quarter intend to sell their home (26% say their plan is to downsize or to sell their home and not buy another).

18% intend to make overpayments or use disposable income. 18% intend to switch away from their interest-only mortgage, either by switching to repayment or by making another change, with 14% intending to change to a repayment mortgage at some time in the future when funds permit. 5% said they would not be able to pay back the mortgage.

Paul Smee, CML director general, said: “It is reassuring that the regulator’s findings echo our own, and suggest that the majority of interest-only customers are both aware of their repayment obligations, and have at least a reasonable plan about how they expect to repay their loan.

“Lenders recognise that they have a valuable role to play in helping their customers to plan ahead, and to take action in good time to reduce the risk of being caught short when the time comes for the mortgage to be repaid.

“We are working as an industry to ensure that good, pre-emptive communication with interest-only mortgage customers is the norm. Most people, even if they have not yet done so, have time to plan a satisfactory strategy for when their mortgage reaches maturity.”

Martin Wheatley, chief executive of the FCA, added: “We welcome lenders’ commitment to pro-active communication with their interest-only customers, and also their commitment to helping at-risk customers to try to find satisfactory solutions to unexpected shortfalls.

“Borrowers themselves do need to respond and engage with their lenders on how they plan to repay. My advice to borrowers is to not bury your head in the sand – understand the terms of your mortgage agreement and take control.”