Financial Services

ICS revives bridging loans ‘to ease bottleneck’ in second-hand home market

Short-term property loans essentially disappeared in the wake of the property crash

Bridging loans can allow a buyer to finance a home purchase initially before moving on to a traditional mortgage.
Bridging loans can allow a buyer to finance a home purchase initially before moving on to a traditional mortgage.
Joe Brennan
Wed Oct 09 2024 - 08:23

ICS Mortgages has launched a bridging loan product, heralding a return of a short-term lending offering that vanished across the Irish market in the wake of the crash.

The brand, owned by nonbank Dilosk, says bridging finance should help ease a bottleneck in the second-hand property market, making it easier for individuals to trade up or down.

ICS says it will offer bridging finance with terms of up to 18 months, allowing borrowers to transition into a regular mortgage facility if desired. Designed to support individuals and families in smoothly transitioning between homes, this product is also ideal for property investors seeking quick financing for auction purchases and renovations on buy-to-let properties, it said.

“While bridging lending is a competitive segment in other jurisdictions like the UK, the exceptionally low risk tolerance of the Irish banks means that home movers have been starved of this particular credit option,” said John Cronin, a banking analyst and author of online newsletter Financials Unshackled. “It is very pleasing to see that ICS is taking the initiative to launch this much-needed product to facilitate Irish home movers.”

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More than two-thirds of people in the Republic live in homes that had more rooms than needed, the Economic and Social Research (ESRI) said in a report earlier this year, with many who want to downsize later in life struggling with a lack of options,

ICS highlighted that there were only 12,495 second-hand properties listed for sale in Ireland in August 2024 – representing just 0.6 per cent of the housing stock, compared to the 3-4 per cent typically seen in a healthy market.

“Our introduction of bridging finance is a game changer for the Irish housing market,” said Ray McMahon, chief commercial officer at ICS Mortgages. “This product will improve liquidity in the Irish housing market and provides greater confidence for those looking to downsize.”

“It will help unlock the potential of the second-hand housing market, making it easier for people to transition between homes and for investors to bring more refurbished properties to the rental market.”

Bridging finance, because of its short-term nature, is a much more expensive form of credit than standard mortgages. ICS is offering a variable rate, currently priced at 1 per cent per month on loans worth up to 70 per cent of the value of a property, according to a spokesman for the lender.

By contrast, ICS’s standard mortgage rates range from 4.5 per cent, for three- and five-year fixed rate loans, to 5.9 per cent for a variable rate where the loan-to-value ratio is 80 per cent or higher.

ICS Mortgages said mortgage brokers and estate agents have reported strong demand for bridging products. It said the product will ease the bottleneck in the second-hand housing market, facilitating smoother transitions for those looking to change homes and contributing to a more dynamic and accessible property market.

Bridging loans had been a widely-marketed product during the 2000s property boom. However, they essentially disappeared in the owner-occupier market after the crash as mortgage demand slumped, negative equity hit many borrowers and banks reined in their risk appetite as they dealt with soaring bad loan losses.

While some niche lenders – including some from the UK – do advertise bridging finance, this is usually available only to investors, or on commercial property deals.

For example, Maslow Capital, a UK-based property lender owned by asset manager Arrow Global, launched a bridging loan business in the Republic late last year, mainly targeting Irish special purpose vehicles and overseas buyers of property in the State.

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Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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