Fresh hope for home buyers as builders underwrite price falls

Chalie Weston

February 11 2009 04:47 AM

ONE of the country's leading banks is to launch a new mortgage with built-in protection against negative equity.

The move is set to ratchet up the pressure on other lenders to come up with a similar scheme.

The new offer from Ulster Bank is targeted at first-time buyers and those trading up, and applies to specific housing developments.

Developer clients of the bank who sign up for the offer will have to put aside up to 15pc of the value of the home that can then be repaid to the homeowner after five years if there is negative equity, the Irish Independent has learned.

Negative equity is when the value of the mortgage is greater than the value of the home. It is one of the big factors stopping new buyers committing to the housing market.

The guarantee will protect homeowners against falls in the value of their homes of up to 15pc over the original purchase price after a five-year period.

Someone with a €300,000 house who sees it fall in value by 15pc will get €45,000 paid off their mortgage at the end of the five years.

Already 10 developers have signed up for the new Secure Step mortgage in areas as diverse as Killarney in Kerry, Dundalk in Co Louth, Ballsbridge in south Dublin and Kildare.

Ulster Bank expects more developers to get on board once the scheme is officially launched today.

The scheme is restricted to developers who have taken out loans with Ulster Bank. This allows the bank to have a clear view about the solvency of those getting involved in the scheme, according to Ulster Bank head of product management Joe Heneghan.

Scheme

Developers who join the scheme will have to deposit 15pc of the value of the home with Ulster Bank for the five-year period.

The interest rate on the Secure Step mortgage will be 3.7pc standard variable rate, which is below the bank's existing standard variable rate. There will also be a five-year fixed rate of 4.2pc. Ulster Bank will lend up to 95pc of the value of the home.

It is estimated by Ulster Bank that 30,000 homes lie unoccupied, having been built during the housing boom.

The latest figures available on mortgage market activity for the third quarter of last year show that just 1,322 first-time buyers took out a mortgage at the end of last summer.

However, this new initiative is expected to help kick-start the first-time buyer market.

Mr Heneghan said developers will be forced to put a realistic value on their properties, a move some housing experts said may stop some construction companies continuing to resist slashing prices.

Developers will have to use four national valuers, which include Lisney, Gunne, Sherry FitzGerald and DNG. If the house is sold with the five-year period, the mortgage will have to be paid off and there will be no negative equity refund.

It is the first time a scheme like this has been attempted in the Republic, although Ulster Bank has successfully launched a similar scheme in the North.