This reflects the investor’s financial incentive to maximise the amount of funds borrowed (without breaching the banks’ threshold above which they require lenders mortgage insurance). That can be more easily achieved with an interest-only loan. And, even in the case of principal-and-interest loans, investors don’t have the same incentives as owner-occupiers to get ahead of their scheduled repayments.
Indeed, just yesterday, a report issued by a consortium of several securitization industry groups endorsed the RESTART project in its first recommendation for an "action plan" to work to restore confidence in securitization markets.