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