FIVE years ago, if you had said that developers would offer "free" loans to would-be house buyers, most people would have thought you were joking, says Louise McBride

With the Irish property market in freefall, developers are under pressure to sell houses. These loans are an attempt to get buyers -- both first-time buyers and investors -- to snap up some of the properties built by those developers.

Many buyers are staying out of the property market because they are either sitting on the fence in the hope that house prices will fall further, or simply cannot borrow the money they need to buy their dream home. The days of 100 per cent mortgages -- when many banks were willing to lend house buyers the full price of their home -- are long gone. With some banks prepared to lend only up to 80 per cent of the value of a home, many buyers must stump up deposits of as much as a fifth of the house price.

However, even if you have not been able to get the mortgage you need from your bank, don't be tempted to rush blindly into a developer's loan. These loans should be approached carefully -- particularly as your home may be at stake if you cannot afford to repay it.

Under the Radora scheme, you can borrow up to 30 per cent of the purchase price from the developer. The remaining 70 per cent of the purchase price -- less a €5,000 booking deposit -- is borrowed from your bank. You must repay the developer's loan within eight years.

However, there is an important caveat. If you repay the loan within five years, you repay only the original loan -- that is, 30 per cent of the original purchase price of the property. If you repay the loan after five years, you pay 30 per cent of the market value of the property at the time you repay the loan. Repaying the developer's loan after eight years could therefore work out more expensive than a standard loan on which you pay interest, particularly if there is an explosion in house price growth within that time.

Also, an annual interest rate of three per cent kicks in if you don't repay the loan after five years. "At the end of year eight, you must repay the loan if you have not already done so," says Radora's draft brochure. "This could be done from personal savings, refinancing the property or from the sales proceeds of the property."

Under the Glenkerrin Homes scheme, you pay a five per cent deposit and borrow 80 per cent of the property purchase price from your bank. The remaining 15 per cent is provided by Glenkerrin. Anyone signing up to the scheme must repay 15 per cent of the purchase price to Glenkerrin within seven years.

However, there is a bit of a carrot for those signing up to the Glenkerrin scheme. If the property has gone down in value by the time the loan is being repaid, the buyer repays the developer 15 per cent of the market value of the property at that time, according to Ray Grehan, managing director of Glenkerrin Homes. However, if the property goes up in value, the buyer still repays 15 per cent of the original purchase price -- not a percentage of the market value at the time the loan is repaid.

Therefore, if you buy a property for €300,000, you must repay 15 per cent of this -- €45,000 -- to Glenkerrin within seven years. If the property is worth €500,000 by the time you repay the loan, you still repay €45,000. But if the property has fallen in value to €250,000, you repay 15 per cent -- €37,500, according to Grehan.

As it's early days, these schemes could change.

"Several people are ironing out the fine print of the scheme," said Grehan. The same is true for Radora. "The legal details of the Radora scheme are currently being finalised," said Ken MacDonald, the managing director of estate agents Hooke & MacDonald, an agent for Radora. MacDonald said that Radora was dealing with a number of financial institutions to see if buyers who used the scheme would be able to get a mortgage from the lenders. "Developers are currently corresponding with the Financial Regulator on this scheme," said MacDonald.

If these schemes go ahead, house buyers would be able to borrow the full price of their home again. Two companies -- the bank and the developer -- would have a legal charge on a property, which may mean that either could force a sale if the borrower cannot repay the loan or mortgage. Traditionally, Irish banks have steered clear where someone else has a charge on a property.

The schemes could also encourage buyers to buy a property which they cannot afford, according to Tony Gilhawley, chief executive of Technical Guidance, a financial consultancy based in Dublin. "In a falling market, buyers may be better off sitting it out and saving their money to accumulate the 20 per cent deposit," said Gilhawley. "If a struggling buyer can't afford 15 to 20 per cent of the purchase price today, where are they going to get the funds to repay the loan in one lump sum in seven or eight years' time?"

Anyone considering these schemes should seriously ask themselves how they will be able to repay the developer's loan. "Can you afford to save regularly over those years to build up a fund to repay the developer's loan, as well as make your normal mortgage repayments on the 80 per cent borrowed? If the answer is no, or you are unsure, this may be a deal you cannot afford," said Gilhawley.

"The [Glenkerrin] scheme amounts to 95 per cent borrowing with 80 per cent repayable over the conventional mortgage term -- say 30 years. However, 15 per cent of the loan is repayable after seven years. This imposes a significant financial burden on borrowers over the initial seven-year term, compared to borrowing the full 95 per cent over, say, 30 years."

David McCarthy, managing director of Galway financial consultants McCarthy & Associates, believes that nine out of 10 of those who sign up to these schemes will have to borrow money to repay the developer's loan. "These are the type of things that people jump into, and years down the road they run into problems and are not able to repay the loan," said McCarthy.

The developers believe the schemes give first-time buyers a chance to get on the property ladder. "If you have a couple paying rent for accommodation, they are better off getting on to the property ladder," said Grehan. "If they wait for a few years, house prices will have gone up and they will have wasted their money on rent."

Grehan did not think it would be difficult for borrowers to repay the developer's loan within seven years. "Their incomes should have increased over those seven years and their property will have increased in value," he said.

Although Grehan said that about 12 people had applied for the loans under the Glenkerrin schemes, it remains to be seen if these schemes will go ahead. The Financial Regulator is examining them.

Prospective buyers would probably be better off biding their time until the Budget is announced next month. The Government could be about to launch a scheme where it will fund the difference between the mortgage obtained by the house buyer and the actual price of the house. Who would you rather have on your side -- the Government or a developer?

- Louise McBride