Financial Stability Notes: An Overview of Interest-Only Mortgages in Ireland

A Financial Stability Note by Edward Gaffney, Christina Kinghan and Ciarán Nevin examines the characteristics and profile of interest-only lending in the Irish mortgage market, as well as the regulation of this product in other jurisdictions.

The key findings of the Financial Stability Note are:

• Interest-only loans were extended mainly to buy-to-let (BTL) investors and were most popular between 2004 and 2008. Before 2008, around 40% of buy-to-let loans were interest-only, but since 2015, the equivalent figure has been less than 1% of BTL loans.
• There is a large share of non-performing loans among interest-only mortgages, higher by 11% at end-2017 compared to other mortgages.
• BTL loans originated since the introduction of the Central Bank mortgage measures in 2015 have average loan-to-value ratios 10 to 15 percentage points below the permitted 70% limit.
• Given the potential risks, it is important to monitor interest-only lending trends and the characteristics of loans originated on this repayment schedule.

The views expressed in this Note are those of the authors alone and do not represent the official views of the Central Bank of Ireland.