FIRST-time buyers getting a mortgage from Haven, the broker-focused division of EBS Building Society, will now need a deposit of 20pc of the house purchase price.

Up to now the lender was prepared to loan up to 85pc of the value of the property, but it has changed its lending criteria, effective immediately.

Last week, EBS said it would no longer fund up to 92pc of the value of a home for a new buyer and required a deposit of 10pc or more.

Director of the Irish Mortgage Corporation, Frank Conway, commented: “This latest announcement from Haven means that the lender is now requiring 20pc deposits — an increase from the 15pc deposit requirement previously.”

This is the third time in a month that EBS/Haven have changed lending criteria. Pressure from the Financial Regulator has forced the group to tighten criteria for first-time buyers. Earlier this month, EBS and Haven said they would stop lending money for the purchase of apartments outside cities and commuter-belt locations.

The Irish Independent has learnt that staff from the regulator’s office told EBS and Haven that the group was lending too much and said it must tighten its criteria.

The building society also made changes to the amount of income it will take into account when assessing mortgage applicants.

For someone with an income of €40,000, the lender will only advance a mortgage amount where the repayments do not exceed 30pc of after-tax income.

HOMEOWNERS who are unable meet their mortgage repayments should be encouraged to voluntarily hand their home back to the bank, an expert group on mortgage arrears has recommended.

The group’s interim recommendations do not contain any proposals on forcing banks to write off mortgage debt.

Finance Minister Brian Lenihan rejected suggestions the group’s recommendations were “too little, too late”.

Encouraged

But opposition politicians said there was nothing for homeowners in the interim report of the Mortgage Arrears and Personal Debt Expert Group.

Instead of calling on banks to write off some of the debts of strapped householders, the group said people unable to manage repayments should be encouraged to leave their home and be provided with social housing.

“When it is concluded that the mortgage is unsustainable then forbearance is unlikely to be appropriate and voluntary surrender may be necessary,” the government-appointed arrears group said yesterday.

People should be assisted in “applying for social housing or other long-term housing supports appropriate to their needs”, the report says.

The group has recommended that there be a radical overhaul of the state mortgage interest supplement scheme, which is funded by the Department of Social Welfare.

But it concluded that mortgage interest supplement should only be provided “if there is a realistic expectation that assisting the borrower will ensure that they can sustain the mortgage in the longer term”.

The group put off looking at negative equity — and whether any consumer debt should be written off by the banks — until it produces a final report in September.

Instead, it recommended that all lenders must put in place a mortgage arrears resolution process (MARP) which would include allowing home buyers to extend the term of the mortgage, or pay interest only, or take a payment break.

The report, the main recommendations of which have been exclusively revealed in the Irish Independent, said lenders should not penalise borrowers taking part in a mortgage arrears repayment process.

They should not be allowed to encourage homeowners to switch from mortgage products such as trackers, if it would put them at a disadvantage.

Financial Regulator Matthew Elderfield has said he would amend banking rules to put the main recommendations on a statutory footing.

The Cabinet yesterday approved changes in the mortgage interest supplement (MIS) scheme, which were recommended in the report.

These changes will allow an eligible couple, where one person is in full-time employment, to qualify for the state-funded MIS .

The ban on paying MIS to such a couple has been removed and a revised means test is to be introduced.

Taoiseach Brian Cowen said the new measures would ensure an end to penalties or arrears charges for those taking part in the arrears resolution process.

Betrayal

But Fine Gael TD Michael Ring accused the Greens of joining Fianna Fail in “betraying” homeowners. The report confirmed there would be no NAMA for the people, he said.

“As the Taoiseach and his cronies lined up at the announcement, were any of them really thinking about the plight of the 33,000 households who cannot pay their mortgage and the 250,000 people in negative equity?” the Fine Gael spokesman on social welfare asked.

“This watered-down, half-baked and hollow report adds insult to injury for these households who can thank the Taoiseach for their current plight.”

A HOUSING initiative to be launched today will see social housing applicants and tenants able to buy new houses at discounts of up to 60%.

The Incremental Purchase Scheme will allow approved housing organisations tooffer new houses for sale for the first time ever.

Social housing tenants and persons who have beenassessed as having a housing need will be able to avail of discounts ranging from 40% to 60% of the total cost of a new home depending on income.

The scheme will also place responsibility for repair, maintenance and insurance of the home on the new owner.

It works by transferring full title to a new house to the purchase on payment of between 40% and 60% of the cost of the property.

A charge is placed on the property in respect of the discounted amount which declines in annual increments of 2% until the charge is eliminated, while the buyer takes out a mortgage to meet the remaining cost.

There is no release of the charge if the property is sold within five years.

However, it can be sold at any stage at market value with the housing authority being repaid from the proceeds the amount of the outstanding charge. But the housing authority will have first option on buying the property in the event of it being sold during the charged period.

The scheme is also structured to make it attractive for people to put down long-term roots in the community and to commit to an area.

Housing Minister, Michael Finnernan said the objective of the scheme was to make it possible for households with income substantially lower than that required for affordable housing to start on the path to home ownership.

Households must have a minimum gross annual income of €15,000 in order to be eligible for consideration for the new scheme.

“The scheme offers the earliest possible start on the path to home ownership for those willing and able to undertake a house purchase,” said Mr Finnernan.

He claimed the scheme’s benefit for the Government is that it would provide an opportunity to extract additional value for money from capital expenditure through its social house investment programme.

“In the current economic circumstances, it is important that we use all available resources to their fullest potential to meet the challenge of providing suitable accommodation for those households in need of it,” said Mr Finnernan.

The scheme is a central element of the Government’s housing policy, “Delivering Homes, Sustaining Communities”.

The minister will also announce today that he intends to bring an end to the current tenant purchase scheme which was first introduced in 1995.

Mr Finnernan has instructed all housing authorities to notify existing tenants of this decision to enable them to have an opportunity to purchase their home under the current scheme.

The Government is planning to introduce legislation next year for the sale of existing local authority houses to tenants based on the incremental purchase model.

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.

Morgan Stanley predicts ECB will raise rates to 1.25% in Q3 of 2011. Eamon Quinn reports
 
ECB president Jean-Claude Trichet: delayed raising ratesKey bank borrowing rates will start to rise here from next summer and will continue to climb by the end of 2011, Morgan Stanley has predicted.

The global investment bank forecasts the European Central Bank (ECB) will raise rates in the third quarter of 2011 by a quarter-point to 1.25% and they will continue to increase, leaving rates at 1.5% by the end of the year.

The rate increase will bring a sharp end to the cumulative 3.25% cut in rates the ECB has sanctioned since the start of the global economic and banking crisis. The central bank last moved in May last year when it cut rates by a quarter of a percent to an all-time low of 1%.

A rise in official rates will hit thousands of Irish tracker mortgage borrowers whose home loan repayments are pegged to ECB interest rates. Banks here have already dramatically increased their interest rates to home loan borrowers on variable rates.

In its latest global markets outlook, Morgan Stanley predicts other central banks, except for the Japanese central bank, will also start to increase their official interest rates next year.

Most dramatically, the economists predict the Bank of England will increase its key rate at the start of next year to 1% from 0.5%. British interest rates will then climb to 2% by the end of 2011.

Key interest rates in the US, now at only 0.125%, will start to rise too. The US Federal Reserve, which last cut rates in December 2008, will rapidly hike key interest rates to 2.5% by the end of next year, Morgan Stanley predicts.

Irish economists here also predict that the world’s central banks will start increasing interest rates.

Alan McQuaid, chief economist at Bloxham Stockbrokers, said the ECB will make its first delayed move to increase interest rates in the first part of next year.

“It has delayed raising rates because of the debt crisis, the banking liquidity crisis and because eurozone economies are still quite weak and there is no inflation risk,” said McQuaid. The ECB will start increasing rates by successive steps of 25 basis points (0.25%) in each quarter, he said.

McQuaid said this weekend’s gathering of leaders from among the world’s 20 largest economies will show up sharply the lack of consensus in the G20 about the best ways of tackling the world recession.

Austerity budgets that aim to cut government deficits below 3% of GDP by 2014 will do more harm than good, said McQuaid.

PERMANENT TSB is planning to stop offering interest-only mortgages to new customers.

There are fears other banks could also pull this offering, which allows people to pay lower mortgage payments if they are struggling.

Permanent TSB was the first bank to hike standard variable interest rates, which resulted in higher mortgage charges for customers.

The interest-only facility is understood to be still being made available to existing mortgage customers.

Sources said however any new home loan customers will have to pay capital and interest on the mortgage from the beginning of their loan term.

The bank is also understood to be currently reviewing the possibility of a further interest rate hike.

Permanent TSB has raised its standard variable mortgage rates by 0.5% on two occasions inside the last 12 months – last July and in February of this year – bringing the rate to 3.69%.

The bank’s chief executive Kevin Murphy said earlier this year it would be reviewing rates again around the middle of this year. Permanent TSB is expected to release a statement shortly in relation to any changes on mortgage terms.

Brokers have said they have concerns lenders could end interest-only payment terms before the end of the contract.

“Many investors could be caught short if lenders chose to end interest-only loans three years into a five-year term,” said one broker.

Meanwhile, consumers were warned not to consider interest-only mortgages or a moratorium as first option when dealing with debt by the Debt Managers Association of Ireland, (DMAI).

Chairman of the recently formed DMAI, Eugene McDarby, said he is concerned money saved by availing of these options could be used to pay off other personal debts.

“I am hoping to see a situation where the whole client debt position is looked at first by the mortgage lender before a decision is made on the mortgage repayment options,” he said.

Director of the Irish Mortgage Corporation, Frank Conway, has called for a debt expert group, to deal “head-on with a significant and growing debt problem in Ireland”.

PERSONAL FINANCE: DOES ONE MISSED mortgage payment doom you to a life denied access to credit? Or if you messed around with a credit card when you were younger will this make it hard to get a mortgage now that you want to settle down? Given the difficulties faced by many people at present when it comes to settling their bills, understanding your credit rating – and looking at ways of improving it – has never been more important.

When you borrow money from a financial institution, you automatically give your lender permission to send information about your repayments to the Irish Credit Bureau (ICB). So, any late or incomplete payments could condemn you to a life without the ability to borrow, as potential lenders may run a check on your credit history before lending you any money. Without a good credit rating, you may find access to credit very difficult, or where it is available, it may be more expensive, as is the case with sub-prime mortgages.

“It’s the key to getting finance in the credit society we now live in,” says Frank Conway, a director with the Irish Mortgage Corporation. “You’ll find it near impossible to do so if you have negative comments on your credit report.”

John Lowe, financial adviser with The Money Doctor agrees. “It can be impossible to get a loan – not only do you have to prove that you have an income, but you need to have a squeaky clean record, and banks still have a reluctance to lend.”

For Bank of Ireland, a person’s credit rating is an important factor taken into account in the lending decision, “as it demonstrates the customer’s payment history on previous/current borrowings with Bank of Ireland and other financial institutions”.

At AIB, “the financial track record of our customers is important in assessing applications”, but the bank also adds that it is “chiefly concerned with a borrower’s sustainable capacity to repay any sums advanced”.

Given how easy it is to get a copy of your credit rating, if you have any concerns over your credit history you should apply for your report. While all information recorded should be correct, mistakes do happen so keeping an eye on what information is being kept in your name is a prudent move.

Lenders send information about borrowers who have mortgages, car loans, personal loans, leasing/hire-purchase agreements and credit cards and your report includes information such as the names of lenders and account numbers of loans you currently hold, or that were active within the last five years; repayments made or missed on these loans; and any legal action taken against you. To get a copy of your report, you can apply online, at icb.ie, and for a fee of €6 you will get a copy of your credit report within three to four working days.

The ICB collates all the information it receives on you from the various lenders from whom you have borrowed money, and from this produces a Credit Bureau Score (CBS), which indicates your future ability to repay a loan. The factors which go into determining this figure include values such as the number of previous late payments, number of accounts, and number of previous applications for credit in the preceding 12 months.

The ICB stores information about borrowers and their loans for five years after the loan is closed, or in the case of a judgment against you, it is stored for life.

Before you start panicking that you’re going to have all your lines of credit cut off because you recently switched from Halifax or PostBank to another bank and your direct debits were late in being set up, relax. According to Conway, if you’re three days late with your mortgage repayment, this won’t be reported to the ICB. Where problems arise however, is when you go over 30 days, although even then such instances aren’t always reported to the ICB, which, it should be noted, is owned by lenders including AIB and Bank of Ireland.

“The anecdotal evidence is that lenders don’t always pass it on,” notes Conway, although he points out that where problems arise is where you are persistently late giving rise to 90-day delinquencies.

Indeed banks themselves have their own reasons for not passing on such information. Given the rapid deterioration of the economy, and the resulting decline in incomes, there are now many people who, under normal circumstances, would be able to pay their bills, but now find themselves unable to do so. If the banks can’t lend to them when the economy turns around, it will affect their business in the future.

“If too many people have marks on their credit reports then the banks won’t have too many people to lend to in a few years,” says Conway.

As such, it is perhaps no surprise that the Central Bank, in its recent report on banking supervision, recommended the establishment of a central credit register which would collate comprehensive data on the debts of consumers.

For Conway, the increasing sophistication of the Irish credit reporting system is inevitable, saying that the process is likely to become more automatic in the future, rather than being done at the behest of the lenders.

In the meantime, if you are struggling with your debts and are concerned about the impact this may have on your credit report, the advice is to repay your priority loans first.

“Mortgage delinquencies carry more weight so pay off your mortgage first, there will be much more serious repercussions if you don’t,” warns Conway, adding that some unsecured lenders, such as credit card providers, are particularly aggressive when it comes to collecting their money. However, you shouldn’t let their persuasiveness put you off making your mortgage payments.

If you are having problems meeting these repayments, remember that a bank will be loathe to offer you any sort of restructuring if you’re going to use that money to pay off another creditor such as a credit card provider. So prepare a detailed income and expenditure report to argue your case. And, if you’re looking for any sort of payment holiday or moratorium, remember to ask your lender how it will impact on your credit report.

Will they for example, report that as a violation or will they treat it as sticking to the terms of your mortgage contract? If you do find yourself in a position where your credit score has been hit, unfortunately there isn’t really anything you can do to rectify the situation. However, what you can do is ensure that it isn’t made any worse.

For Conway, there are a number of steps you can take in order to achieve this. Firstly, he advises that you engage with your creditors, asking whether or not any delayed or incomplete payments will be reported to the ICB as a delinquency or violation of contract. He also recommends that you stick within the limits set on your current account, and only use credit where necessary, in case you forget to repay it. Moreover, if closing an account you should always ensure that your direct debits move seamlessly to the new account – if not you could exceed the 30-day limit.

Lowe suggests that when seeking credit again you make every effort to be consistent with your repayments following any lapse, and to try and offer the lender some rationale behind your lapse, for example that you lost your job but are now in permanent employment again. However, this may not always work.

“Some will take it on board, but some won’t,” he says, noting that sub-prime lenders, who traditionally catered for those with poor credit histories, have now “gone to ground”.

New figures show that asking prices for homes fell by 3.4% in the second quarter of 2010, bringing the fall for the year so far to 7%.

Property website MyHome.ie, which compiled the figures, says the latest quarterly fall is the 14th in a row and brings the total decline from the peak in late 2006 to almost 30%.

But the survey shows that there are some signs that the three-bedroom market in Dublin is stabilising, with asking prices for three-bedroom terraced houses increasing by 4%.

The average asking price for a home nationally is now €291,278 compared with €301,449 three months ago and €337,600 12 months ago.

In Dublin asking prices overall fell by 4.5%, bringing the total fall over the last 12 months to 17%.

New homes saw a higher fall compared to second hand homes during Q2, falling by 4.2% compared with 3.3% for second-hand homes.

Limerick city saw the biggest decrease of the main urban centres, with the median asking price falling 7.3% to €222,500. In Cork the fall was 5%, while in Galway it was 3.6%.

TENS of thousands of homeowners struggling to meet repayments on their mortgages are to be thrown a major lifeline.

Under new guidelines advocated by a government expert group, banks will not be allowed to take borrowers off their valuable tracker mortgages when they renegotiate their repayments.

Lenders will also be told to stop imposing penalty interest charges on those who are in arrears. These penalties can be as high as 12pc a year and are levied on the missed payment amount.

Tracker mortgages are much prized because they track European Central Bank rates by a fixed percentage. Up to now anyone in trouble meeting repayments on a tracker usually had to switch to a more expensive variable mortgage that had no fixed link to the ECB rate.

But now the expert group advising the Government on mortgage debt will tell it to stop banks from switching thousands of borrowers to the more expensive rate.

As well as adopting these measures, the Government is expected to overhaul the state mortgage support scheme.

The move follows last week’s call from the International Monetary Fund for the Government to protect people at risk of losing their homes.

The expert group is concerned that some lenders are forcing homeowners who come to them to reschedule their payments to drop their tracker mortgages.

Tracker mortgages, which are guaranteed to only go up when the European Central Bank raises its rates, have turned out to be the best value.

Some people with trackers are paying as little as 1.5pc in interest on their mortgages.

But many lenders demand that homeowners sign away their tracker as a condition of allowing them to reschedule their mortgage to reduce their monthly repayments.

The expert group is also to recommend a major overhaul of the mortgage interest supplement scheme, a state social welfare payment made to people who cannot pay their mortgage. The scheme is set to cost €64m this year alone.

But it has been criticised for being haphazard, with thousands of people turned down for the support as the criteria for being accepted for it are not clear and consistent. Around a third of heavily-indebted households who apply for the mortgage supplement are rejected.

Directly

At the moment the mortgage supplement payment, which averages €321 a month, is paid to the mortgage holders but the group wants it paid directly to the lender.

The expert group held its last meeting yesterday before presenting an interim report to Finance Minister Brian Lenihan at the end of this week. It will stop short of recommending a financial bailout for homeowners.

Instead it will reconvene again in July when it will consider more substantial measures to bail out distressed mortgage holders.

Among the major measures it is set to consider next month is a plan to cap mortgage repayments for those in arrears as a percentage of salary.

This is particularly for those who have ended up in arrears because they lost a job or have reduced income, rather than householders who simply over-borrowed during the boom.

These people could have their monthly mortgage repayments readjusted so they do not end up paying any more than a third of their reduced salary.

The interim report of the group will also recommend changing the process for assessing those seeking to reschedule their mortgages. It wants a standardised way of dealing with arrears, known as a mortgage arrears repayment plan.

The recommendations of the group are almost certain to form part of new statutory rules for lenders as one of the leading members of the mortgage expert group is Financial Regulator Matthew Elderfield. Its recommendations are set to form part of the revamped code that will apply to all lenders, including subprime lenders.