Plan to protect homebuyers against future market falls

FINANCIAL SERVICES group IFG has said its new homebuyers’ product to insure against future house price falls could be used by Nama instead of – or in conjunction with – its own deferred payment product aimed at kickstarting the property market.

The firm has held talks with Nama about its Home Price Protection Plan, which protects buyers against negative equity arising from future house price falls.

This is the first product of its kind in the Irish market. IFG said that because the product involves the administration of a trust, it falls outside the remit of the Central Bank and therefore does not require regulatory approval.

Frank Ryan, chairman of IFG Ireland, said that the product could offer greater flexibility than Nama’s own payment deferral product, which it is developing in a bid to revive the market.

“This product may have more flexibility – they may complement each other,” he said. “Nama may find that this ticks all the boxes they need and it may assist them without having to incur a cost of bringing a product to market.”

IFG’s product requires the vendor of the property to defer up to 20 per cent of the purchase price for as long as four years. The deferred payment is made into an independently managed trust.

If the value of the property stays the same or rises, the money is paid to the vendor. If it falls, it is reimbursed to the purchaser after the trustee independently verifies the value of the property using the Central Statistics Office monthly index.

A fear of negative equity and further price declines was deterring buyers, said Mr Ryan. “The seller needs to be more proactive in removing this obstacle,” he said.

The cost of the service will be paid by the interest accrued on the deferred payment in the trust.

Buyers who purchased a year ago have seen their properties fall about 12 per cent in value in that time, wiping €24,000 off a property purchased for €200,000.

Nama plans to reveal more details this autumn that allows buyers to defer 20 per cent of a property’s value for five years to try to shift properties on its books.

If the value of the property remains the same or rises over that time, then Nama will collect the 20 per cent from the buyer.

Nama is in discussions with Bank of Ireland, Allied Irish Banks and Irish Life and Permanent about its payment deferral plan.

Property prices have fallen for 3½ years, declining 43 per cent since they peaked in 2007. Residential properties fell by an average of 12.5 per cent over the past year.