Monday 23 April 2018

Homeowners to get negative equity loans

Charlie Weston

Charlie Weston

A NUMBER of lenders are planning 'negative equity' mortgages for homeowners, in a desperate bid to kick-start the crashed housing market.

The radical move will allow people to move house, despite owing more to the lenders than their current home is worth.

Under the deal, buyers will take the negative equity portion of their current mortgage on to a new one when they move house.

As many as one-third of mortgage holders are expected to be in negative equity by the end of this year. However, there are fears the new push by lenders could encourage homeowners to throw good money after bad, as the property market slump is considered far from over.

The Irish Independent has learned that state-backed Irish Nationwide and Bank of Ireland, plus Permanent TSB, are all preparing to launch the controversial products -- as well as two other institutions who are already offering extremely limited versions.

It could help revitalise the listless property market and provide a lifeline for homeowners trapped in a location where they no longer want to live.

But it would effectively mean that homeowners are moving straight into negative equity once again, albeit in a new location.

The move comes after the Government promised to inject over €30bn into various banks to help them absorb losses caused by bad loans given during the property boom.

The introduction of negative equity mortgages in the UK in the last year generated huge criticism amid fears that those taking them out will just end up deeper in debt.

UK building society Nationwide was attacked after introducing a negative equity mortgage that allows consumers to borrow up to 125pc of the value of their new home.

Northern Rock, the lender rescued by UK taxpayers, was also previously accused of overheating the housing market as it had a negative equity mortgage product during the boom.

Now an Irish Independent investigation has uncovered that the three lenders are actively working on bringing the deals to the market.

Irish Nationwide could be in a position to bring in the product as early as the autumn.

But the lenders insist that the controversial products will be very much niche ones and will be limited to genuine cases.

Any new product would need to be approved by the Financial Regulator -- where staff are anxious that negative equity mortgages do not end up fuelling a new housing boom.

It is a little-known fact that EBS Building Society and Ulster Bank already allow negative equity mortgages in a limited capacity in Ireland, for selected customers who they judge can afford the repayments.

Ulster Bank admitted that it is lending up to 140pc of the value of the new mortgage for those availing of its negative equity mortgage. But it insisted: "Negative equity mortgages are available to existing Ulster Bank customers in specific circumstances. All applications are dealt with on a case-by-case basis and specific criteria apply."

EBS said it had a product "to help people that are in negative equity to purchase a home".

Head of residential lending at Irish Nationwide, Martin Noonan, said: "We are looking at it for our own customers."

Mr Noonan explained that if someone originally borrowed €300,000 but their Dublin house was now only worth €250,000, they would be €50,000 in negative equity.

If this person needed to move to another part of the country for a job, they would be able to buy a new house for €250,000. Their overall borrowing would still be €300,000.

Being in negative equity means you cannot sell your house to move somewhere else. This is because you will still owe the bank more than the sale price of the home. Banks will not normally allow you to sell up in that situation.

Economic and Social Research Institute (ESRI) economist David Duffy has estimated that up to a third of mortgage holders could be in negative equity by the end of this year.

The ESRI has estimated that the average first- and second-time buyer who bought in the last six years is on average almost €40,000 in negative equity. It will be 10 years before most first-time buyers are out of negative equity.

Irish Independent

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