More than one in three ‘non-conforming’ loans that matured between January 2016 and June 2017 were left with unpaid balances, S&P found .

Around 27.5% of loans with outstanding capital were owner-occupied and 8.5% buy-to-let (BTL).

At the moment, there is apparently limited appetite to start repossession proceedings against borrowers who have failed to pay the lump sum payment of capital, S&P noted.

Lenders appear to be treating customers on a case by case basis – and in some situations loans may be repaid upon the death of the borrower, the study showed.

Problems vary by location

In the North West of England, Northern Ireland and Scotland, where there has been little house price growth since loans were taken out, borrowers have no realistic prospect of downsizing to pay off loans, S&P warned.

These areas have seen a disproportionate share of loans that have not been paid off at maturity, according to the report.

Rising values in the South East of England mean homeowners in the area have the best chance of paying off the interest-only capital.

Most authorities have considered this risk unlikely to crystalize in the short term, S&P said.

But added that significant proportions of interest-only borrowers are likely to have lacked the financial means to save toward a suitable repayment vehicle.

The ratings agency found the risk was highest among self-employed borrowers, those over 55 years-old and borrowers who self-certified their incomes.

Market trends may help to ease the problem, S&P said and noted that some lenders had recently widened their lending criteria to allow interest-only mortgages to borrowers up to their 85th birthday.