THE NATIONAL Asset Management Agency has revealed how it plans to kick-start the residential property market by offering would-be home buyers protection against negative equity.
It has published proposals which would offer people, afraid to buy because of concerns that the property market has yet to hit the bottom, a “deferred payment scheme”. This would see the size of loans fall by up to 20 per cent if a property bought from Nama fell in value over the five-year period after purchase.
Nama has about 8,000 Irish residential properties on its books but it insisted yesterday that it had no plans to interfere artificially with the property market.
It stressed that under its proposed scheme, potential buyers would deal exclusively with their own banks and would never engage directly with Nama over a purchase. Under the proposal, which will require government backing, if a property has a selling price of €200,000 and a potential buyer has a deposit of €20,000, then they will be able to apply to one of the two “pillar banks” – AIB and Bank of Ireland – for a mortgage of €180,000.
Once the loan is approved and the sale concluded, the buyer’s loan repayments will be based on the full €180,000 mortgage.
However, Nama will defer the payment of 20 per cent of the value of the property at the time of purchase, which in this case is €40,000. It will seek to reclaim this payment if the value of the property is maintained or increased over the next five years.
After five years, the property will have to be independently assessed and, if the value has remained static or increased, then Nama will collect the outstanding amount of the mortgage and the buyer’s repayments will continue as normal.
If the property falls in value, however, to for example €160,000 over the period, then Nama will waive the outstanding €40,000 of the mortgage, leaving the purchaser with a €140,000 mortgage.
Not only will their mortgage fall significantly but they will actually be ahead in their payments, because over the preceding five years their repayments will have been based on a higher mortgage. Once the new mortgage amount is agreed, a different payment schedule will be put in place.
Nama chairman Frank Daly accepted that home owners with loans outside Nama might be concerned about the effect on the value of their property and the agency interfering in the market.
“This has the potential to lift all boats. We are not getting into the market in a huge way,” he said. “What we are talking about is a very modest intervention with the objective of getting something moving there and if the market gets moving it will advantage them.” The proposal has been welcomed by the industry.
“First-time buyers are reluctant to take the plunge to buy their first home and to effectively ‘call the market’ by deciding that this is the optimum time to make the decision,” said Ciarán Phelan, CEO of the Irish Brokers Association.
“Nama’s decision to underwrite much of the negative equity risk is a logical and welcome idea.
“If enough people take up the offer and re-engage with the property market,” Mr Phelan added, “then the risk of further price erosion will be significantly diminished.”
