NAMA's negative equity mortgages cleared by EU
THE State's bad loans agency, NAMA, has got approval from the EU to introduce mortgages that protect homebuyers against negative equity.
The scheme had been approved by Minister for Finance Michael Noonan.
EU officials have now cleared the way for the scheme, which could help kick-start the stalled housing market, the Irish Independent has learned. There was concern among EU regulators that it might distort the market for non-state-owned lenders.
NAMA has held talks with AIB and Bank of Ireland, the so-called pillar banks. The pilot scheme for the new mortgages is likely to be introduced in the coming weeks, putting other banks under pressure, particularly non-Irish lenders.
While the full details of the product have yet to be unveiled, the Irish Independent understands the idea is to protect or "insure" buyers against negative equity. Negative equity is when the mortgage on your home exceeds its market value.
NAMA will lend mainly to first-time buyers, but they will not be liable for the full amount of the mortgage if the value of their home drops into negative equity.
NAMA will seek to protect the borrowers from a 20pc drop in the value of a property -- with no protection offered beyond that. Deposits of about 10pc will still be required.
Described as a "controlled gamble", effectively NAMA is betting that the housing market will soon turn up and that negative equity won't be a big issue in the long term.
NAMA claimed the housing sector stalled due to a lack of credit and that by partnering with the two main banks it can help fund buyers for its assets, mainly houses and apartments.
A spokesman said: "We are making good progress on this and to be in a position to launch it shortly."
NAMA said one reason buyers were not coming forward was because of worries about falling into negative equity.
The Brussels all-clear for the NAMA negative equity scheme came as stockbrokers Davy said in a research note yesterday that residential property prices had fallen by 60pc
Davy economist David McNamara said prices were back at affordable levels. It now took less than three times the average disposable incometo buy a home. But a lack of lending by banks remained a concern.