More than 40% of interest-only mortgages holders will start repaying their loan’s principal within the next two years, according to an economic note from the Central Bank.
This will cause particular difficulty for buy-to-let borrowers, who make up a significant proportion of interest-only customers, as their full mortgage repayment will likely be larger than the rent they receive.
Meanwhile, 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 authority, 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 borrowers.
Rising house prices may also play a role in this, it says, though it would need to be an average rate of 3.2% per year in order to benefit many borrowers.
In its note, the Central Bank says that there are broadly two types of borrower on interest-only mortgages at present.
Some were offered the terms by banks - particularly between 2005 and 2008 - as part of a buy-to-let investment, while others have been placed on the reduced repayment schedule as a temporary solution to mortgage arrears in more recent years.