Central Bank findings on interest only mortgages

The Central Bank released some findings on interest only mortgages (below), we’ll follow up with some commentary and interpretation soon.

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The research analyses the loan characteristics, including loan performance, of mortgages originated on interest-only terms in Ireland.

The main findings of the research are:

  • While interest-only arrangements have been widely used as a means of temporary forbearance to deal with the current mortgage arrears crisis, mortgages were also originated on interest-only terms during the height of the boom.
  • Between 2005 and 2008, interest-only mortgages were mainly issued to buy-to-let investors on tracker mortgages and at high loan-to-value ratios.
  • Interest-only mortgages were more likely to be issued to buy-to-let borrowers in Dublin and for the purchase of apartments than standard mortgages. The arrears rates on these mortgages are higher than standard mortgages.
  • A significant number of interest-only mortgages are due to revert to principal-and-interest repayments in the next 2 years. The resulting higher repayments for these borrowers could lead to an increase in mortgage arrears.
  • 44 per cent of the buy-to-let interest only borrowers will be beyond retirement age when their loans are due to start principal-and-interest repayments.  However there are 14 years on average until these borrowers retire, allowing them substantial time to establish strategies to cope with the additional repayment

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