Thursday 22 June 2017

Nama's equity plan 'is doomed by ECB rates'

Hobbs rubbishes scheme to protect homeowners, insisting any progress would be wiped out by a few interest hikes

Ronald Quinlan

Ronald Quinlan

A proposal by Nama to protect homebuyers from negative equity has been dismissed as an attempt to "manipulate property prices" and will not work in the face of rising interest rates imposed by the ECB, leading economic adviser Eddie Hobbs says.

"They're trying to put a floor on the market. You would have to say that it's a positive attempt, but the history of economics is littered with various attempts to manipulate property prices. If interest rates rise, it doesn't matter what kind of floor you try to put on the market, because you'll be overwhelmed by it.

"I'm in Germany at the moment and the place is absolutely hopping. The German economy is booming and inflation is rising in Europe. The Central Bank in Frankfurt is going to raise interest rates to protect the German economy, so that is the problem that needs to be addressed," Mr Hobbs told the Sunday Independent.

Asked what he thinks should be done to make Nama's negative-equity proposal work, he added: "Nama needs to talk to the Government, to talk to the ECB and to talk to the Irish banks and get together to offer 20- and 30-year fixed rates, not just for people coming into the market right now, but people who are already in the market. If you go to somebody who is in negative equity and offer them a 20- or 30-year fixed rate, that's going to provide the floor for property prices, because it's about affordability now. It's not about price anymore."

A spokesman for Nama, meanwhile, defended the agency's proposal, which is currently under discussion with the Bank of Ireland and the AIB.

"Nama is open to different suggestions and is exploring a number of options. The agency will also consider other proposals from the banks or other interested parties and is keen not to be 'prescriptive' on this issue," the spokesman said.

Asked for comment on Eddie Hobbs' view that the 20 per cent negative equity protection currently being mooted by Nama would be quickly wiped out by a succession of ECB interest rate hikes, the spokesman insisted the agency was not trying to put a floor on property prices.

"The market will set the price, not the developer or the seller. The value of a property is what people are prepared to pay," he said.

And while Nama's chief executive Brendan McDonagh and its chairman Frank Daly intimated last Thursday that their discussions on negative equity protection with the AIB and Bank of Ireland had progressed to the point where the innovative scheme could be in place by this autumn, other sources close to the discussions have told this newspaper that the banks were at best "lukewarm" on the proposals.

"They're not as enthusiastic as you might think. There is a nervousness there; and it would appear at this point that they are looking for Nama to take on more of the risk," one informed source said.

Chief executive of the Irish Brokers' Association Ciaran Phelan was more receptive to Nama's proposal, describing it as "a logical and welcome idea". "If enough people take up the offer and re-engage with the property market, then the risk of further price erosion will be significantly diminished," Mr Phelan said.

The Department of Finance, for its part, refused to give any indication as to whether Finance Minister Michael Noonan would give his endorsement to the negative equity protection scheme, saying simply: "Nama is carrying out its functions in line with its establishing legislation. The minister met with Nama recently to set out his policies and objectives."

Sunday Independent

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