Mortgage offers under State scheme may be pulled due to Covid-19 crisis

Mortgage offers made under a government loan scheme may be withdrawn due to the Covid-19 crisis, while those in receipt of wage subsidies could face additional hurdles in drawing down loans under the scheme.

The Rebuilding Ireland Home Loan (RIHL) is a State scheme which has seen hundreds of millions loaned out by local authorities to individuals who could not obtain loans from a conventional bank.

However, according to advice drafted by the Housing Agency for the Department of Housing and sent to each local authority in May, county councils should review all issued letters of loan-offer "as a matter of urgency".

The local authorities have also been told to write to all recipients of loan offers to establish whether their circumstances have changed. Where they have and are seen to be “significantly altered”, according to the circular, the local authority involved should consider whether the loan approval be “suspended, withdrawn and reissued at a revised level, or withdrawn fully”.

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The same applies to potential borrowers in receipt of approval in principle, an earlier stage in the process of receiving a mortgage. A spokesman for the Department confirmed it had sent the advice to local authorities, but emphasised that it did not constitute a “blanket ban” or “one size fits all approach”.

The Department of Housing did, however, confirm that it is working on a circular for local authorities on the treatment of those in receipt of the State’s Temporary Wage Subsidy Scheme.

Unsupported income

While people on the subsidy can still apply for the loan, a spokesman for the Department confirmed that “draw-down would not commence until the applicant’s unsupported income post-Covid subsidy has returned to the level specified in the original application for a period of time, usually up to three months”.

“This is in line with the need to lend on a prudent basis, as a mortgage is a long-term commitment and it would not be appropriate to lend if there is a real risk that the person’s income and ability to pay might not return to pre-Covid levels,” the spokesman said.

Local authorities will, however, be permitted to provide loans in advance of the three-month period “where appropriate”, the Department said in a statement.

However, the opposition questioned whether the changes envisaged in the circular currently under consideration would amount to a blanket ban, if introduced. Sinn Féin’s housing spokesman Eoin Ó Broin said the Department’s statement suggested such a policy could be in the offing.

“The Minister for Housing Daragh O’Brien needs to clarify the position immediately. Is he intending to introduce a blanket ban or not? Yesterday he said he would not, today his Department says he will,” Mr Ó Broin said.

“Mortgage lending, particularly the Rebuilding Ireland Home Loan Scheme, must be prudent, in the interests of the home buyer and the taxpayer. There can be no blanket approach,” he added. “Each case must be assessed on its own individual merits and decisions taken accordingly.”

It comes after it emerged that several lenders are applying additional scrutiny and conditions to the draw-down and approval of mortgages for those in receipt of the Covid-19 pandemic payments.

Such steps include requiring an applicant to produce evidence from their employer that their wage is sustainable after the State’s Covid subsidies expire. Some lenders assessing joint applications where one party is in receipt of a subsidy will insist the other applicant is able to cover the entirety of the mortgage with their own income.

The banking sector has defended the additional conditions, pointing to a range of legal and regulatory measures put in place after the financial crisis to ensure loans are made on a sustainable basis.