Thursday 29 September 2016

State approves just two loans in two years for mortgage scheme

Published 25/08/2016 | 02:30

Consumer advocate Brendan Burgess Photo: Frank McGrath
Consumer advocate Brendan Burgess Photo: Frank McGrath

Just two mortgages have been issued in the past two years under a State-backed mortgage scheme that allows borrowers to get approval with tiny deposits.

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Mortgages under the Home Choice Loans scheme allow first-time buyers to have a deposit of just 8pc of the property's value.

This is in contrast to the Central Bank-imposed rules which dictate that first-time borrowers must have a deposit of at least 10pc for amounts up to €220,000, and 20pc for amounts borrowed over that.

Home Choice Loans are issued by local authorities, and have an interest rate of just 3.25pc, one of the lowest in the market. Central Bank lending restrictions do not apply to local authorities.

But no mortgages were issued last year under the scheme, and none in the first quarter of this year, according to the latest figures from the Department of Housing, Planning, Community and Local Government.

This is despite persistent complaints that new buyers were unable to get mortgage approval due to the banks having to implement the deposit restrictions. Now there are calls for Simon Coveney's department to scrap the scheme, as critics say it is not working.

According to the website for the scheme: "Home Choice Loans can provide up to 92pc of the market value of a property purchased. The maximum loan amount is €285,000."

People getting a mortgage must provide evidence they were refused a mortgage by two mainstream banks. To qualify you must be a first-time buyer, and "earn more than €35,000 for a single applicant, and more than €45,000 combined".

The scheme was put in place in 2008 as the financial crisis hit. At the time, banks had stopped lending. Consumer advocate Brendan Burgess said it was strange there was so little take-up of the scheme as it allows deposits of just 8pc.

He speculated that local authorities were turning down applicants, saying: "I think at this stage the scheme should be scrapped. It is essentially a sub-prime loan scheme at competitive interest rates.

"I suspect that if people have been rejected twice by the banks, there is good reason for them to be rejected for a Home Choice mortgage," Mr Burgess, who founded the Askaboutmoney.com website, added.

Questions about why so few mortgages had been issued, and why the scheme was not being promoted, went unanswered when put to the Department of Housing.

The department was asked if people had applied for mortgages but had been refused.

Its spokesman said: "Failure to satisfy the terms of the credit policy would be a significant factor in the limited drawdown of Home Choice Loans to date.

"However, the credit policy serves an essential purpose in terms of prudent lending and the available data would suggest that Home Choice Loans issued to date are performing well."

But it confirmed that just two Home Choice Loans had been issued in 2014, none last year and none in the first quarter of this year.

The spokesman for the department added: "Since the Home Choice Loan scheme commenced in 2009, 21 Home Choice Loans have been issued with a total value of €3,931,755."

Meanwhile, the Central Bank has so far received just 16 submissions as part of a review of its mortgage lending rules.

The Central Bank launched a review of the rules in June to assess their "impact and effectiveness".

The consultation process deadline is August 31.

How to qualify for a Home Choice Loan

To qualify for a Home Choice Loan you must have been refused a mortgage by a mainstream bank.

The loans are issued through local authorities. You have to meet the following criteria:

- Be a first time buyer (some exceptions may apply).

- Earn over €35,000 as a single applicant, and over €45,000 combined income as joint applicants.

- Be in continuous employment for a minimum of one year. If you are self-employed be able to submit two years’ certified accounts.

- Provide evidence via a broker that you could not get a mortgage from two banks.

Applications are assessed by the Home Choice Loan central process unit. Mortgages are then issued by four designated local authorities: Galway County Council, Kilkenny County Council, Cork City Council and Dublin City Council.

The four local authorities provide the loan on behalf of all remaining local authorities.

To apply for a mortgage under the scheme you have to complete an application form with your broker. The broker then submits the application form for assessment. Applications are assessed by the Home Choice Loan central process unit and the broker will be advised of the decision, according to the Home Choice Loan website, homechoiceloan.ie.

Irish Independent

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