Sunday 23 October 2016

Are boom-era residential mortgage products set for a comeback soon?

John Cradden

Published 16/08/2015 | 02:30

Although it is not currently selling equity release loans, finance specialist Seniors Money says demand remains high
Although it is not currently selling equity release loans, finance specialist Seniors Money says demand remains high

Equity release products, which allow older homeowners to cash in on the equity on their property as part of a move to trade down to a smaller home or even boost their pension funds, could be on the way back.

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Although it is not currently selling equity release loans, finance specialist Seniors Money says demand remains high, and it is taking names for a new waiting list in the expectation that it will be able to resume lending within the next six months.

Derek Handley of Seniors Money says the firm has not yet been able to source funds for new loans "at an economic rate".

"This has been a challenge during the financial crisis, but with the Irish economy continuing to improve, there is renewed interest in funding Irish financial services businesses such as Seniors Money," he says.

"In addition to our particular case, there is an understanding that equity release will continue to increase in importance as part of the solution to the growing pension gap."

This got Cashflow wondering: what other mortgage-based financial products that were once widely available during the boom years are no longer available - or only on a very limited basis? And might any of them return as the property market recovers?

100pc mortgages

Even if there was a residual appetite among lenders and would-be borrowers for a 100pc mortgage, its long-term fate has been sealed with the Central Bank's new rules for mortgage lending.

Even first-time buyers looking for mortgages of less than €220,000 will still have to cough up a deposit of 10pc of the property's purchase price (and 20pc of whatever amount above this), while the rest of us will have to come up with 20pc before a loan will be approved.

Bridging loans

Given the revival in property values, the difficulty many families have in closing a financial gap that might otherwise be unbridgeable between selling their home and buying another ought to mean a market opportunity for short-term bridging loans. After all, many folks would be happy to pay a higher price for such a loan if it makes a new house move possible.

"They are gone since the crash and I wouldn't envisage they will be back any time soon," says Ken Murray of the Association of Expert Mortgage Advisors, adding that there was basically no alternative to it - basically, buyers must sell their existing home before they can buy a new one.

"Certainly, none of the lenders that deal with brokers offer it," says Liam Ferguson of brokers Ferga and Associates. "It became very rare after the credit crunch. Too many purchases were collapsing at the last minute, leaving the customer in the unsustainable position of having their existing mortgage plus the bridging loan to maintain for an indefinite period."

Karl Deeter of Irish Mortgage Brokers hasn't done a bridging loan in the last 10 years. "They may exist, but I don't know where," he says, adding that the main issue is that a person can be carrying a double debt, but one option if such finance is absolutely needed is to take out two mortgages and then redeem the old one after the new purchase goes ahead.

Interest-only mortgages

Interest-only mortgages, where the borrower pays only the interest on the loan each month, have been used in more recent times as a way of dealing with some cases of mortgage arrears but, of course, they were once freely available to homeowners, particularly first-time buyers, who opted to have the first one to three years of their mortgages paying the interest-only as a way to spread out all the costs of setting up a home.

"Any sort of interest- only facility is gone," says Mr Murray. "Not something of concern on the home loans side, but certainly a good facility for those looking to purchase a buy-to-let."

Current account/offset mortgages

Never a popular nor widely available product, this was a type of annuity mortgage that combined a variable interest rate mortgage with a current account and worked in such a way that the more money you have in your current account, the less you pay in mortgage interest.

KBC advertises a product called a "current account mortgage bonus", but this is merely a switcher offer whereby if you take out a KBC current account into which you pay your salary, you'll get a fixed reduction of 0.2pc on KBC mortgage rates as well as a number of other bonuses, such as 50pc off KBC home insurance for the first year.

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