IT’S NOT QUITE a return to the 100 per cent mortgage, but the 90 per cent mortgage is now being offered to potential Irish homeowners.
KBC Bank today began actively promoting 90 per cent mortgages. The lender says the move is being made to meet increasing demand from first time buyers and people trading up.
According to the bank: “For loans up to €750,000 KBC is increasing its offering from an 80% maximum loan to value to a 90% loan to value”.
The willingness of lenders to allow buyers high levels of mortgage credit was one contributory factor leading to the property collapse – some homeowners now burdened with debt took out 100 per cent loans at the peak of the boom. (Remember this ad from Bank of Ireland?)
KBC’s Head of Products Edward Dylan says that that in contrast with similar mortgages offered elsewhere in the past, the bank was placing a major importance on the affordability of the loan for prospective buyers, saying that it would be the “primary metric” they looked at.
Speaking to TheJournal.ie he said bank officials would closely examine the stability of any candidate’s employment situation, along with other factors before signing off on a deal. But he said there would be no “dramatic amendments” to qualifying criteria for buyers seeking a 90 per cent mortgage, as opposed to an 80 per cent one.
Economist Derek Brawn – who published a book predicted the collapse of the property market – says a maximum rate of 85 per cent would be more appropriate. Speaking to TheJournal.ie, he said tougher rules were needed to promote a more reasonable lending climate.
A rate of 90 per cent may make sense in a market like now with depressed prices but we need to get to a situation like Canada where 85 per cent is the maximum. A good rule of thumb you have people saving a 15 per cent deposit.
Brawn says a change to the law requiring a prospective buyer to put up a set proportion of the asking price would lead to more equity in the market, and create greater stability, making conditions more attractive for banks to begin lending.
The latest Residential Property Price Index from the Central Statistics Office showed some positive signs, with housing prices continuing to fall, but at a slower rate than recent years.
There was a 1.2 per cent decrease nationally in the year to April. However sales for the month showed there was an average price increase of 0.8 per cent, compared to a fall of just over 1 per cent in April of last year.