...Same Name, Different Products: In the UK, interest-only mortgages (IOs) are not typically backed by repayment vehicles; however, the vast majority of Dutch loans combine an IO loan part with a second part which amortises or to which a monitored repayment vehicle is attached. This difference is partly driven by incentives ¡ in the Netherlands, tax incentives have made IO mortgages economically attractive for everybody, while UK borrowers tend to use such products to reduce their monthly instalments, attracting riskier borrowers. Dutch IOs Outperform UK Variant: Arrears on Dutch loans with a high IO component, ie above 50% of the total loan, are 20% lower than UK IO loans. Furthermore, UK IO loans are 50% more likely to be in arrears than UK repayment loans. In the Netherlands, mortgage loans with a high IO component perform the same as repayment loans. Limited Shortfalls Expected: Fitch estimates the potential principal shortfalls on IO loans at maturity for a selected portfolio under different...
