Wednesday 16 October 2019

Home Economics: Our property finance expert answers your questions


The ‘Rebuilding Ireland’ initiative aims to provide 25,000 new homes by 2021. Stock photo
The ‘Rebuilding Ireland’ initiative aims to provide 25,000 new homes by 2021. Stock photo
Sinead Ryan

Sinead Ryan

Q We were recently approved for the Rebuilding Ireland Home Loan (RBHL). We were delighted to get approval as this meant we could now get an affordable mortgage, or so we thought. On closer inspection, we realised we were tied into a mortgage protection provider called Generali Pan Europe which will charge 0.55pc of our loan amount working out as an extra €132 per month. This is up to 10 times more expensive than most other providers.

This makes an affordable mortgage almost unaffordable for us. I have called the helpline about this but they have informed me that we don't have a choice and we can't switch down the line. Is it not against the law to not allow people a choice in choosing mortgage protection?

A It would indeed be against the law for anyone but a local authority, which is exempt from the normal consumer code. When someone takes out a mortgage, they are obliged to effect mortgage protection insurance (MPI). In its most basic form, this is life cover only, decreasing in line with the outstanding balance to pay off the loan balance should you die before the end of the term. You can, and should, shop around for this since the market is very competitive. However, the RBHL is covered by a group mortgage scheme it has tendered with one insurer - Generali - and it is a statutory requirement that you take out this policy instead. RBHL tells me that the policy (which is expensive) covers "additional features over and above the standard MPI products available on the market". This includes making the loan repayments if you cannot due to disability and €3,000 funeral expenses cover and carries on to age 75 instead of the normal 65.

Because it is a single group rate, the policy is not underwritten by age/health of the individual, so for many, it will be over-priced, while for others it will represent good value.

The Department added that the premium of 0.55pc of the loan amount decreases in line with the loan each year. The only opt out is for someone with a pre-existing medical condition, who is permitted to take out their own cover, so I'll leave that with you! If it's any solace, the funds have now dried up for these loans, so you got in just on time.

Q A friend of mine went through a bad time during the recession, resulting in her falling behind on her mortgage for less than a year. She returned to full time work and continued full payments but not on the arrears. Due to the pressure her relationship broke up and the house was sold with the mortgage arrears paid off. She has enough from her share to pay a deposit on a modest house, and her monthly repayments would be less than her rent costs. However, she has been refused a mortgage as her name is on the Credit Bureau's default list for five years. How is this lawful having paid all she owed?

A I do sympathise, but I'm afraid that from a lender's perspective your friend is still considered a poor risk. There are many factors at play, but falling into arrears which were only paid off once the property was sold, would be chief among them.

The Credit Bureau is a bank-run database of loans, debts, arrears and repayments that are accessed when anyone applies for credit. Recently it has come under the control of the Central Bank and has broadened considerably in its scope. This is a good thing for the financial system as a whole, but can be unfortunate for individual borrowers.

The best advice is for your friend to keep her finances under control, add to her existing deposit, not to miss even a single repayment on a credit card or any personal loan or even drift into unauthorised overdraft, and reapply in a couple of years. If she is renting meantime, she should have a rent book where all transactions are clear. I would strongly recommend she uses a mortgage broker when reapplying as it will smooth the path.

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The Ryan Review

Is there an upside to Brexit? It's hard to think of one, but the general flat-lining of the EU economy has meant that the European Central Bank probably now cannot raise interest rates as was planned for later this year.

Sluggish sentiment, not aided by the continuing chaos in the UK, has led some pundits to suggest that the rate increase may now not happen until 2021. Ireland, not for the first time, is an outlier, with strong growth, plenty of lending and the lowest unemployment figures in a decade.

However, we are also in something of a 'goldilocks' period which may come to a shuddering halt at the end of March.

As it stands the ECB's QE programme has now finished, the downturn could get worse, leaving it with very limited options (how do you cut pc rates except allow them descend into negative territory?). But never let it be said there isn't a silver lining: Irish mortgage holders can expect pressure to come on all lenders to act accordingly and continue the downward push on rates, especially now the tracker redress scheme is (almost) complete, loan books are more buoyant and arrears have reduced substantially.

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