NAMA to give negative equity-proof loans
Published 20/05/2011 | 05:00
NAMA is to radically shake up the mortgage market by offering home buyers mortgages that partially protect them against negative equity.
NAMA has already held talks with AIB and Bank of Ireland, the so-called pillar banks, about the idea. The product is likely to be introduced in the autumn, putting other banks under pressure, particularly non-Irish lenders. While the details of the product have yet to be unveiled, the Irish Independent understands the idea is to protect or 'insure' buyers against negative equity.
NAMA will lend mainly to first-time buyers, but these buyers would not be liable for the full amount of the mortgage if the value of their home drops into negative equity.
NAMA will seek to protect the borrowers from a 20pc drop in the value of a property, with no protection offered beyond that.
Deposits of about 10pc will still be required for the product in the normal way.
Described as a "controlled gamble'', effectively NAMA is betting that the housing market will soon turn up and negative equity won't be a big issue for today's borrowers in the long term.
NAMA claimed the housing sector stalled due to a lack of credit and by partnering with the two main banks it can help fund buyers for its assets, mainly houses and apartments.
NAMA said one reason buyers were not coming forward was because of worries that once they bought a house or apartment it would fall in value, placing them immediately in negative equity.
"This concern is entirely understandable and it is one that we are looking to address in the initiatives that we are currently preparing,'' said NAMA chief executive Brendan McDonagh yesterday, speaking at a meeting in Dublin.
Mr McDonagh said the product would provide an "incentive'' for purchasers to invest at current prices in the knowledge there was a mechanism in place to protect them against the risk of negative equity.
It is understood NAMA is hoping the scheme will kickstart the residential market and if that happens only a certain number of the products may be offered. NAMA is believed to control thousands of apartments and houses.
Meanwhile, NAMA has approved the sale of an estimated €3.3bn in property assets since March 1, 2010, much of it in the UK, Mr McDonagh revealed.