Last month Moody’s published research that a large number of borrowers over the age of 60 had interest only mortgages. Having considered the research, Acenden, the mortgage service specialists, believes that the findings should make the industry sit up and notice.

Reducing risk in the mortgage industry has been a core focus of regulators since the post-crisis years, especially after the demonising of sub-prime loans. How lenders can mitigate against the risk arising from interest-only mortgage agreements settled before the crash?

Moody’s estimation that 75 per cent of mortgage borrowers aged 60-plus have an interest-only loan, compared to 42 per cent of younger borrowers, should be an alarming number for the industry. If you also consider that 38 per cent of all interest-only loans to the over 60s must be fully repaid within the next four years, then there is a real concern that, come the end of these agreements, lenders will be faced with some very difficult decisions.

The estimation that the average outstanding mortgage balance for older borrowers is £70,000, whether true or not, gives some indication of the capital borrowers will need to clear their debt when the agreement matures. It may be that the majority of these customers will need to sell their properties to repay such an amount. For some borrowers the downsizing will be planned but for others it will be a big upheaval.

Stress-testing mortgage portfolios is always prudent for lenders, especially when future economic growth is uncertain. The ability to model the impact of base rate changes, rises in unemployment and variability in house prices gives lenders a clear understanding of which loans are most likely to experience problems. It is key to do this at the loan level, not a portfolio level.