NAMA accused of inflating prices for special deal homes
THE country's 'bad bank' was last night accused of pumping up the price of properties it is selling under a special deal to protect buyers against negative equity.
NAMA, the National Asset Management Agency, said the new deal would protect buyers from a price plunge.
But economists and property experts said the selling prices were significantly higher than those being asked for similar properties not under NAMA's control.
Under the deal, buyers must have a 10pc deposit.
And they have to be able to meet repayments on the full amount they borrow.
But NAMA sets aside 20pc of the selling price for five years.
After that time, if the value of the property falls by anything up to 20pc, the buyer will have a corresponding amount knocked from their mortgage.
The price will be arrived at by an independent valuer.
If a €200,000 property falls to €180,000 after five years, buyers would effectively have €20,000 cleared off their mortgage by NAMA.
That would significantly reduce monthly repayments.
And since their repayments were calculated on the original value, they would effectively have overpaid their mortgage for five years.
As a result of that, they would then end up with even lower repayments on a smaller outstanding amount owed on the house.
The deal is being tested on a limited trial basis to help kick-start the market and take some of the risk of falling prices out of the equation.
While the properties are being sold by the developers, NAMA now controls the bank loans taken out to acquire the lands and build the houses that are part of the scheme.
An initial 115 houses worth €30m are to be offered.
But there were accusations last night that some of the properties up for sale were overvalued by NAMA and that similar houses now cost less.
Oxford University-based housing economist Ronan Lyons, of the daft.ie property website, was among those who accused the agency of pumping up the prices of the properties in the scheme.
He gave the example of a four-bed at Drakes Point, in Crosshaven, Co Cork, which is for sale at €400,000.
Mr Lyons said that in a firesale these houses would sell for half that price.
Other properties on sale as part of the scheme were also "very pricey" he said.
Houses in the north Co Dublin village of Naul also have sales prices of up to €400,000.
Financial expert Karl Deeter said the plan would distort the market as it would push down the price of houses near those for sale as part of the scheme.
"Nearby properties will sell below the value of the NAMA properties because they will have no guarantee on them," he said.
But NAMA chairman Frank Daly flatly rejected any suggestions that the agency had inflated the prices for houses as part of what it is calling the 80:20 Deferred Payment Initiative.
"The values we have put on the properties are realistic values, rather than inflated prices. They are not artificial prices," he said.
Bank of Ireland, Permanent TSB and EBS are rowing in to provide mortgages under the scheme.
However, state-owned bank AIB, which has the lowest mortgage rate in the market at 3.1pc, will not be providing mortgages under the new scheme.
But a spokeswoman for the bank insisted that it was supportive of the NAMA plan. EBS, which is now an AIB subsidiary, was involved in the project.
"AIB is supportive of the NAMA pilot scheme through EBS, which is part of AIB now," she added.
The EBS standard-variable lending rate is 4.33pc, but rises to 4.45pc for those borrowing 80pc or more of the property's value.
Bank of Ireland has variable rates as low as 3.4pc.
Permanent TSB confirmed that it will be offering its 80:20 mortgages at 3.69pc.
Some 115 houses worth €30m will be offered as part of the pilot scheme, but this could rise to 750 properties worth €150m if the pilot is a success.
NAMA controls the loans on 14,000 residential units, with 4,000 of these unfinished. Most of the residential properties on NAMA's books are apartments, it said.
The scheme will apply to 12 developments in Dublin, Meath and Cork. Buyers will have to come up with a deposit of at least 10pc of the property's value.
NAMA said: "A key benefit for buyers is that for the first five years their repayments can be calculated based on a mortgage that includes the deferred-payment element.
"If the price of their house falls over the five years and they may not be liable for the deferred-payment element, they will have, in effect, been accelerating their mortgage repayment and achieving considerable savings on the interest accruing on their mortgage."
The agency said that buyers would be protected against declines of up to 20pc over a fixed five-year period in the value of the property.