Irish Interest-Only Mortgages: In 2006 we asked
the Central Bank for data on interest-only (IO) mortgages but no data was
requested from banks. Today the bank published an economic letter in which it
warns of the danger of mainly BTL (buy-to-let) mortgages from the period
2005-2008 seeing an end to the interest-only period in coming years.
The research shows that the IO period expires for 43% of these
loans in the next 24 months requiring both principal and interest (P&I) to be
Jane Kelly, Gerard Kennedy & Tara McIndoe-Calder, authors of the
letter published today say the concern is that when they move to P&I, some borrowers
may experience difficulty meeting the higher repayment schedule. Evidence
suggests that the switch from IO to P&I has tended to trigger arrears in the
past for these borrowers, with the over 90 days arrears rates much higher than
for other BTL borrowers.
The economists say that 44% of buy-to-let borrowers currently on
interest-only mortgages will be past retirement age by the time they have to
begin principal repayments, according to the authors, which will make the
higher cost burden more difficult.
However the Central Bank notes that there is time to address this for the most
part, as there is on average 14 years before a switch takes place for these
In the sample, 15% of mortgages by value are subject to IO
repayments: 8.2% of the book are original IO, while the remainder are IO loans
which involve some element of modification.
The authors say that in general, the arrears rates are
higher amongst IO loans than their P&I counterparts, particularly for loans over
360 days arrears. "This failure of IO borrowers to meet their repayments is
concerning given the reduced repayment burden they face whilst on IO terms and
the prevalence of low cost tracker mortgages among these borrowers."
wrote in 2006 [In recent years, more than 75% of Bank of Ireland investment
customers have availed of the bank's ten-year interest-only mortgage, according
to Bank of Ireland Mortgages Manager Olive Moran.
"It's very attractive as it enables investors to defer capital repayments for
the first ten years," Moran told the Sunday Business Post. "They can then spread
the capital repayments over the remaining period of up to 15 years.
Alternatively, if they have access to a lump sum from a personal pension policy,
they can use these funds to repay the outstanding capital."]