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Charlie Weston: Radical plumbing key to repairing house market

WE need a powerful drain cleaner for the mortgage market. This is because property lending is like a blocked sink at the moment.

The property market is being bunged up by two types of homeowners.

There is the negative-equity generation, who owe more on their mortgage than the home is worth; and then there are those who are on trackers and dare not give up these low-cost loans.

You would be crackers to give up your trackers, as this newspaper informed readers a few years ago, and families seem to have taken that advice to heart.

Of course, there is some overlap between these two groups, as some of those in negative equity also have valuable trackers.

Another blockage in the system is the reluctance of potential first-time buyers to jump into the home-owing game while prices keep falling.

A recent survey conducted by Daft.ie found that a huge proportion of potential new buyers were put off by plunging prices.

And, boy, are prices falling. Just this week, we had the latest dismal property-price index from the Central Statistics Office showing a quickening in the pace of property-price falls.

In the past 12 months alone, prices dived by 18pc and the average property has now halved in value from the peak in 2007.

Many economic commentators feel prices have actually fallen by even more.

Whatever, the bottom line is that potential new buyers are not biting, and those in smaller homes who want to move are unable to do so.

Mortgage lending is at a 40-year low.

Just like the sink, there is nothing moving either in or out of the property market.

All of this means that what is needed is a powerful unblocker for the bunged-up mortgage market.

And two new developments could act as just such a declogging agent.

The move by Ulster Bank to become the first in the market to allow people to move house and keep their low-priced tracker mortgage could be a key to stimulating property-buying activity if it is replicated by others.

Other lenders were taken aback when they learned of this development from the Irish Independent yesterday.

Up to now, trackers have operated like "golden handcuffs", tying people to the property the tracker was taken out on.

Homeowners will not trade up or down for fear of losing this valuable rate.

By ditching a tracker, a homeowner who then moves house and ends up on a variable rate faces having to pay an extra €150 a month on every €100,000 borrowed.

Ulster Bank's move is particularly radical because the legal contract for any mortgage in this country is always against the particular property it was taken out to buy.

So the move by the Royal Bank of Scotland-owned bank is set to turn the mortgage market on its head.

Ulster Bank has really put it up to the other lenders by offering this portable tracker.

The second development that is set to shake up the property lending market is the confirmation that six lenders are seeking permission from regulators to offer negative-equity mortgages.

Bank of Ireland and Permanent TSB are already offering these products in limited circumstances.

Now Ulster Bank is seeking permission to offer a negative-equity product. This could be offered in conjunction with its tracker transfer deal, or as a stand-alone product.

The argument with the regulators on the negative-equity product is over what proportion of the existing loan will be permitted to be taken on to a new mortgage.

Regulators currently only approve mortgages where homeowners end up owing 25pc more than the new property is worth.

Ulster Bank is seeking approval for a larger proportion of negative equity to be loaded on to the new property, according to head of branch banking, Jim Ryan.

These two radical moves -- a concerted move to offer negative-equity mortgages and tracker transfers -- have the potential to kickstart the market.

Meanwhile, coming soon is a property register, which will reveal the real price of houses and apartments.

The new house-price database is due to go online by the end of June, and will contain the full addresses of all properties sold since January 2010, the date of the sales and the final selling price.

It is the first time that accurate information on the selling prices of houses will be available to the public, who have previously had to rely on rumour or the word of estate agents.

Add to this the fact that new buyers need to pounce before the end of the year to benefit from generous government tax reliefs. These mortgage tax breaks could be worth up to €5,000 for a first-time buyer couple.

All of this means this year could be a key one for the property/mortgage market. Many commentators feel prices, if they have not bottomed, are certainly very close to it.

If potential new buyers and mover purchasers start to come to the same conclusion, then the congested house-lending market might just be about to loosen up.

Irish Independent