LENDER KBC Bank has made it more expensive for both new buyers and for those who transfer their home loan to it to take out a mortgage.

KBC is one of the few lenders accepting mortgage switches. However, yesterday the bank said it would increase the interest for new residential customers who opted to take out a two-year or three-year fixed rate.

The two-year rate goes from 3.45pc to 3.70pc, with the three-year rate rising from 3.75pc to 3.90pc. The new rates are effective from October 1.

The mortgage lender left its standard variable rate unchanged.

Director of mortgage services at broker body PIBA, Rachel Doyle, said any home owner who did not have a tracker would be well advised to lock in to a fixed rate now. “Rates, both variable and long-term fixed, are on the rise so delaying a decision could be costly.”

AIB has one of the best three-year fixed rates at 3.65pc, while Irish Nationwide offers the same rate for those borrowing less than 80pc of the value of the home.

Irish Independent

TALKING PROPERTY: THESE days we don’t hear a peep of complaint from first-time buyers. They are now top of the heap: property prices have plummeted and they appear to be the only sector of the mortgage market managing to extract a loan from the banks.

The pyramid which was the Irish property market has been turned upside down and is now balancing precariously on the jagged remains of its once pointed head.

Historically, the property pyramid was a solid structure with a wide base consisting of low-income earners and first-time buyers, gradually narrowing to the tiny number of super-wealthy individuals positioned at the top.

Most of us had a fair idea which level of the property pyramid we were on.

Some struggled to stay where they were, others were happy with their situation and many, during the boom times, grabbed every opportunity to climb higher, aiming for the pinnacle.

In the early days of the recession, when those on the sharp pointed top of the pyramid were dramatically knocked off their perch, few cared.

Many believed the super-wealthy property investors could afford the hit and had squirrelled away much of their wealth in offshore accounts.

The media (myself included) laughed at their misfortune and expressed little sympathy regarding their demise.

The figures bandied about were so vast that they were beyond most people’s comprehension. Behind the glee at their fall, many secretly admired their nerve.

Soon, however, the ripple effect began to register. Those at the top of the property pyramid employed, either directly or indirectly, many of those on the lower layers of the structure.

As the pyramid crumbled and dole queues grew to include solicitors, architects, estate agents, builders, quantity surveyors, interior designers, manufacturers, retailers and myriad other related professions, it dawned on the nation just how much we all relied on the construction industry.

We watched the structure disintegrate and topple sideways, but were told we would all survive if we ‘took the pain’ and accepted ‘the new reality’.

Two years on, with more pain coming down the line and no sense of any sort of reality, let alone a new one, we now realise that the pyramid has, of late, completely turned on its head. Inverted, it is now top-heavy and structurally unstable.

According to the latest mortgage market report from the Irish Banking Federation and PricewaterhouseCoopers, there has been a drop in lending of almost 40 per cent compared with the same period last year.

Only 7,800 new mortgages were issued in the second quarter of 2010, with a total value of €1.31 billion.

First-time buyers account for 38 per cent of the loans drawn down during this period and represent the largest segment of the much reduced mortgage market, with an average first-time borrowing of less than €200,000.

Many of these first-time buyers work for state or semi-state organisations or have a secure job contract.

Others, however, work for formerly safe public sector companies which now admit that they’ve been struggling to stay afloat for the last few years and are on their last legs.

Last weekend, I spoke with a couple whose company will shortly have to cease trading.

They have already invested almost all of their personal savings into the business, in the vain hope of keeping their heads above water, but must now admit defeat.

In order to save themselves, they must close down their business, which they’ve been running for nearly 30 years, and let their staff go.

This upsets them greatly, as they are acutely aware of the fact that their staff have families and mortgages and are unlikely to find another job.

They were refused medium-term support from their bank – and told to raise money by selling their family home.

This, however, is easier said than done, as their home is a rambling old country house, an hour’s drive from Dublin.Their estate agent has told them the chances of finding a buyer are slim right now.

“It’s all a farce. Without working capital we’ll go down the tubes and we’ll drag at least five other families down with us. The banks don’t give a damn and the Government is oblivious.”

Perhaps it is now time for banks to adopt a more holistic approach to lending – and it is certainly time the Government took its nose out of the Anglo trough and started to examine the bigger picture.

There is little point in banks lending to first-time buyers if, at the same time, they are pulling the rug out from under everyone else.

A stable structure is required, now more than ever before – and it may be worth remembering that the Pyramids are still standing.

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”.

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.

06 Apr 2010

AIB has made it harder for first-time buyers to get a mortgage by withdrawing a number of discounted home loans aimed at new buyers, mortgage brokers claimed yesterday.

But the bank hit back, saying it is committed to the first-time buyer market. In the past few days, Allied Irish Banks has withdrawn a special low rate of 2.4pc that was aimed at first-timers. This was a one-year fixed-rate deal.

Under it, new buyers were able to borrow up to 92pc of the value of the property.

However, the best new buyer rate has shot up to 3.09pc, according to director of the Irish Mortgage Corporation, Frank Conway.

He said the new higher rate meant that the hardest hit of all the AIB customers by the new charges introduced last week were first-time buyers, as their rate had gone up by 0.69 percentage points, while existing borrowers were hit by, at most, a rise of 0.5 percentage points.

“The latest move by AIB is a disappointment as it means that the cost of borrowing for first-time buyers has been increased the most when compared to other sectors of the market.

“For example, the repayment on a €200,000 mortgage over a 30-year term increases from €779 (based on the 2.4pc rate) to €852 (based on the new 3.09pc rate) — a rise of €73 a month for new customers.”

Mr Conway, whose company has just started a recruitment drive for 10 new financial advisers, accused the bank of shifting away from first-time buyers.

But this was rejected by an AIB spokesman, who said: “AIB remains committed to supporting the mortgage market, in particular first-time buyers.

“Any suggestion to the contrary is not borne out by the numbers.”

The bank said its share of the first-time buyer market had increased dramatically.

Funding

In 2009, AIB accounted for one in every three of first-time mortgages, but it is now writing 40pc of all new property transaction business in the country.

“Unfortunately, we have had to increase rates due to the high cost of funding we are experiencing,” the bank said.

However, Michael Dowling, of the Irish Mortgage Advisers Federation, pointed out that AIB changed the way it calculated what a first-time buyer could borrow, meaning most would qualify for a smaller mortgages.

Mr Dowling said someone on a salary of €29,000 would previously have qualified for a mortgage of €165,000, but would only be sanctioned for €130,000 from now on. This is almost 20pc less.

30 Nov 2009

We know that there is a planned scheme for distressed mortgage holders – internal Green Party memos have been shown ­– but there is no current working solution or blueprint, so what must be done?

We rapidly need answers that are fair to all participants. Currently there are three groups at the table – the lender, the borrower and the taxpayer. Taxpayers have already done more than their share and should not be called upon to remedy further issues, leaving the banks and the borrowers to find a middle ground whereby neither party is the ultimate loser.

Industry and consumer bodies must be engaged as soon as possible and the state needs to stay out of this other than as a facilitator or enforcer. If the government gets involved then the taxpayer gets involved and in principle taxpayers hold no further debt to irresponsible borrowers or lenders.

This knocks out ideas such as debt forgiveness – this oft vaunted solution is no more than a direct transfer from people who didn’t make mistakes to those who did. They tried it in Taiwan for credit card debt in 2005/06 and it was a disaster. Look at a Taiwanese bank balance sheet during this period and it is almost exclusively built up of credit-card debt. While compassion is prerequisite, bad solutions are not.

The changes long-term must come in the very footing of our debt laws, the ability to declare bankruptcy rather than have it imposed upon you is a first step. An end to the ruling whereby you can be chased for 12 years is paramount – this should be revised to five years or less.

Mortgages that are non-recourse beyond the property itself would be a great idea as banks would make more prudent choices. It would also deter rapid property price inflation as increased access to credit would have larger deposit requirements (independent of credit pricing). Currently you can get a 92% mortgage and at the same time access the cheapest rates available – this business model is flawed; higher LTVs must price risk

Short sales where a person in negative equity can sell their property for less than the mortgage and carry out an unsecured loan for the difference would be a further by-product.

If a bank’s only hope for recourse was the property it would compel them to accept alternative solutions.

Allowing a person to sell their actual mortgage would help – it’s called ‘moving paper’. A person with some arrears may have more luck in selling if the buyer can take on (for instance) their tracker mortgage with the deal and clear the arrears in the process. That way the bank get a performing loan and the buyer gets a good deal on the finance.

The banks made a mistake in forwarding credit but equally the borrower made an mistake in obtaining it. The issue is debt mixed with high unemployment and deflation so the only option may be one that allows both bank and borrower to give something up.

The best we can hope for is a long-term moratorium for those who cannot pay, but rather than piling up interest which would just create deeper unrecoverable negative equity, the banks would instead take a comparable percentage ownership in the property in question and then hold a portion of the actual asset the loan is secured upon as well as the loan.

It is better to have this solution in place than one where the bank repossess a property when the market is at a nadir, remove the tenants who want to stay put, and then both borrower and bank crystallise all losses at a low point. The actual costing of such a scheme, if the figure of 35,000 borrowers in arrears is broadly correct, would be less than €800m. The exit strategy will be tricky but it beats the alternative.

Unfortunately, residential arrears tend to lag commercial arrears so it is likely that we have not seen the worst of what the residential market has to offer.

The whole system, from Nama to mortgages or employment hinges on one factor: recovery. If we don’t get recovery it all ends in tears, if we do then the key is to get sufficient forbearance to allow all parties enough breathing room in the interim so that we can fix issues over time when conditions are more favourable.

Sadly, we didn’t opt for market solutions which would have seen much of this solved already, so in the coming months the government needs to flex with the banks, not posture, but push, and our Central Bank needs to stop barking and bite if lenders try to avoid the remedy.

We can, and will get out of the hole we nationally dug ourselves into, but we cannot let the prudent take further punishment for the profligate, and the question really comes down to what condition we hope to come out the other side in.

23 Nov 2009

LENDERS are now evaluating the strength of a person’s employer when they apply for a loan as approvals tighten significantly.

Property related incomes, builders and architects are all experiencing above average difficulty in trying to secure a mortgage, according to the Irish Brokers Association.

It said other retail sectors are also being examined very closely.

Irish Brokers Association chief executive Ciaran Phelan said: “Criteria for lending approval have tightened particularly when it comes to employment and salary.”

He said as a rule candidates in permanent employment are only being considered and contract income does not qualify.

He said there is very little recognition for overtime, bonus and commission income of applicants.

“This in particular is having a significant impact on many mortgage seekers. Unfortunately for some, certain sectors of employment are almost completely excluded.”

Meanwhile, James Maguire, associate director of Financial Engineering, said another noticeable trend is that more and more people are beginning to be able to afford to move back to areas that the really wanted to live in.

“An example of this is a client who sold a five bed house in a satellite town of Dublin to move back to a three-bed semi in north county Dublin.

“The main reason they could do this is that the price of the house has dropped in both areas but they can now afford the mortgage on the new house whereas a few years ago they would not have been able to get this amount of money,” he said.