Nearly two-fifths of older borrowers have interest-only mortgages which are due to mature within the next four years, according to analysis from Moody’s.

Three-quarters of borrowers aged over 60, termed older borrowers by Moody’s, have interest-only mortgages and are more likely to have a low and unstable income and consequently struggle to repay the loan than their younger counterparts.

The report stated: “Older borrowers with interest-only loans [are] a greater refinancing risk than less mature borrowers due to the shorter maturity profile of these loans and the coming refinancing wall. Over one quarter of all loans to older borrowers are interest-only and also due by December 2016.

“Over the next two years, however, older borrowers will avoid repossession through a combination of lender forbearance and more manageable affordability due to lower loan-to-value ratios.

“After two years, older borrowers with interest-only loans are likely to have more difficulty than younger borrowers with interest-only loans.”

Interest-only mortgages are the subject of an investigation by the Financial Services Authority expected to be published in early to mid-April.

Moody’s analysis is based on figures from eight Residential Mortgage Backed Securities master trusts including the Lloyds-owned Arkle and Permanent, Barclays’ Gracechurch, Northern Rock’s Granite and Santander’s Langton.

The figures include close to half a million interest-only loans, with 86,500 held by those aged over 60 and 65,800 of all interest-only loans due to mature within the next four years.

Three-quarters of older borrowers have an interest-only mortgage – nearly twice that of younger borrowers – and 62% have remortgaged. They also have a higher outstanding mortgage balance, on average £70,227 compared to £45,271 for borrowers under 60 years of age.

Nearly half of older borrowers live in single income households and over a quarter have a household income of under £30,000. They are also twice as likely as younger borrowers to be be self-employed.

Repossession rates are 28% lower for borrowers aged over 60 at origination compared to younger borrowers but arrears are 1.2 times greater, highlighting the use of forbearance.

Moody’s warned higher interest rates could lead to a rise in defaults, but predicted many borrowers would manage to avoid repossession due to a mix of lender forbearance and manageable affordability.

If the borrower was unable to switch to a repayment loan, lenders were likely to require principal payments or for the loan to remain fully interest-only.

In extreme cases, this could mean the borrower could service the loan on an interest-only basis until death, the ratings agency said.

Overall, the Financial Services Authority estimates lenders are owed a “ticking time bomb” of £120bn in interest-only loans over the next ten years.