More than 53,000 borrowers took out interest-only mortgages from 2004 to 2008, according to figures from the Department of the Environment.
The numbers peaked in 2007,when 13,605 people took out interest-only mortgages, representing more than 15 per cent of mortgages sold that year.
The numbers taking out interest only mortgages fell to 8,308 in 2008, representing less than 15 per cent of new home loans that year. The large number of interest-only loans sold at the peak of the boom compares with just 3.3 per cent a decade earlier in 1997.
Most interest only-loans are believed to have been sold to buy-to-let investors, though mortgage brokers report that some borrowers also bought their private residences on an interest-only basis, particularly if the mortgage was greater than €500,000.
With house prices now officially back to levels last seen in 2003, interest-only borrowers will now find their houses are worth less than they paid for them.
The numbers taking out new interest-only mortgages fell drastically this year, according to department’s figures.
In the first quarter, only 409 borrowers took out interest only mortgages, representing 6 per cent of all new home loans, while in the second quarter, only 281 borrowers took out interest only mortgages, representing 3.4 percent of mortgages sold.
However, mortgage broker Michael Dowling said the numbers of borrowers on interest only deals was rising fast, as many borrowers now wanted to remain on interest-only deals when the initial interest only term expired because they could not afford the capital repayments.
Other borrowers were switching to interest-only mortgages when they were unable to repay traditional annuity loans (paying off the interest and capital each month) due to deteriorating economic circumstances, such as unemployment.
Dowling said that ‘‘anyone who approaches us in difficulty, at a minimum they are seeking interest-only. The numbers who are going down that route is growing. We would feel it is significant.”
The trend that Dowling describes would not be reflected in the Department of the Environment data, because it captures only new home loans, not ones that have been restructured. Fears are growing that interest-only mortgages are a ticking time bomb for the banks.
One stockbroker said foreign investors were increasingly asking why the banks’ mortgage arrears still appeared relatively low given the deteriorating economic conditions, which included a tripling in the unemployment rate over the last two years.
A spokesman for the Irish Banking Federation said the change to interest-only mortgages was one of many factors which impacted on the banks’ outstanding mortgage debt figure, which was reflected in both the individual bank’s balance sheet and the Central Bank’s figures.
A spokesman for the Financial Regulator said that the banks were required to report on restructured loans as part of their regulatory returns.