While there are some grumbles of dissent about Nama's Deferred Payment Initiative for homebuyers, the scheme is generally being well received as something the property market desperately needs right now, writes CONOR POPE

THE IRISH PROPERTY market has been paralysed for at least four years now and it is hard to know who to blame.

Would-be buyers with cash or the ability to borrow to buy are understandably terrified of taking the plunge in case the market falls even further and they lose their shirts. The banks are terrified to lend in case they make the wrong calls and swell the number of defaulters on their books, And the developers who profited most in the good times have fled or gone to the wall leaving in their wake hundreds of ghost estates to haunt the nation.

All this has happened as successive governments wrung their hands and come up with proposals about proposals without actually doing much to break the logjam, and while the Central Bank has been busy drawing up codes of conduct and stressing how tough it is going to be on lenders. Meanwhile, the stable door swings wildly as the proverbial horse bolts across fields rezoned for houses that will never be built.

It is, in short, a shambles, but at least some moves were made last week which may help address the situation.

Since December 2009, the National Asset Management Agency – or Nama as we all know it – has been focused on untangling the mess the State’s banks, property developers and politicians made of Ireland’s once high- flying but always illusory property market, and for most of its existence, it has been focused on the huge losses generated by the Irish commercial property sector.

Last week, Nama turned its attention to ordinary people as it unveiled a deferred mortgage-payment plan which is attempting to sell the residential properties on its books and kickstart sales in a property market in the process. It wants to encourage would-be buyers who have mortgage approval, but are scared of actually taking the plunge.

It is doing so with an “80:20 Deferred Payment Initiative”. The initiative is commendably simple and promises to protect buyers from negative equity and decreases of up to 20 per cent of the value of their property over the next five years.

Once a buyer finds a house they want to buy – as long as it being sold by Nama – and have managed to persuade one of a selected number of the State’s banks to part with the mortgage, they will be asked to pay 80 per cent of the agreed sale price up front, while the remaining 20 per cent will be deferred for five years after the purchase, as long as the property does not fall in value in the meantime.

They will make repayments on the full mortgage, and if after five years the property is worth less than it was when they bought it, the higher repayments will go towards the reduced mortgage. The mortgages will be provided by Bank of Ireland, AIB subsidiary EBS and Permanent TSB, and buyers will need a deposit of at least 10 per cent of the value of the property to qualify for a loan.

According to Nama, the value of the property will be assessed by an independent broker. The broker’s job will be made a whole lot easier because the property price database will be up and running for years at that point and establishing the price of a house in a particular area will be easier than it is now.

In the initial phase, Nama has listed 115 houses in 12 developments in Dublin, Meath and Cork where the scheme will be piloted. Existing homeowners and first-time buyers can apply to purchase, but the initiative is not open to investors.

“It’s a good offer for buyers who want to remove any uncertainty from their purchase about price drops,” said Nama chairman Frank Daly at the launch of the initiative last week. He said it was one of a number of plans aimed at stimulating the market to “a sustainable level but nothing more than that”.

Anyone with half an interest in such things would have breathed a sigh of relief when Daly added that Nama did not “aspire to the type of market that was this country’s misfortune to have experienced in recent times; a market which was driven by irresponsible lending, unsustainable prices and inglorious hype”.

The managing director of Mortgage Negotiators Trevor Grant has mixed feelings about the plan. “Nama is going to shift some properties with this and make back some money which has been invested in it by the State, and that is obviously to be welcomed. It also appears to have enticed some lenders, including Permanent TSB and EBS back into the market, which is also a plus,” he says.

Then there is the but. Grant has concerns about the consequences of the move for property prices in the areas where Nama has multiple properties to get rid of . “Most of the properties are in Cork and Dublin, and I think auctioneers pretty much agree that prices in these areas are close to the bottom. If I am selling a house in an area, and suddenly Nama is selling in the area too, with the guarantees it is offering, it will make it more difficult for me to sell, unless I drop the price even further. This move could prevent people who need to sell from selling,” he suggests.

“Having said that, I do think it is positive, and the stock does need to be gotten rid of. It is just a shame they did not roll this out 12 months ago when property prices were still falling across the board.”

Certainly, houses being sold by the Nama have performed poorly, even when compared with the collapse across the sector. Properties owned by the agency have already fallen by up to 80 per cent from the peak of the market. A four-bedroom house on an estate at Killeen Castle in Co Meath, built by Dundrum shopping centre developer Joe O’Reilly, is being sold as part of the pilot scheme for €360,000. Four-bedroom houses on the estate were originally priced at €1.9 million in 2008, a decline of 81 per cent in four years.

Ciaran Phelan, chief executive of the Irish Brokers’ Association, also welcomes the moves but with reservations. “The market needs good news and it needs to start moving again, but what is the most important thing is for normal lending to begin again,” Phelan says. “At the end of the day, the old maxim that it is location, location, location is still true, and there is no point in someone looking to buy in a location they do not want to live in just because there is a guarantee in place. The reality is affordability is back but people cannot get the money from the banks. It is time the banks start lending again.”

It turns out that property plans are like buses. You wait years for one and then two come along at once. Following quickly in the footsteps of the Nama initiative were proposals in the pipeline from several leading banks that will allow people to park a portion of their mortgages for a period. The frozen part of their loan will attract no repayments and no interest for an indefinite period.

This would reduce monthly outgoings for families struggling to make ends meet and allow people who are currently on interest-only arrangements to pay off capital on some of their loan without seeing their repayments climb to unaffordable levels. The banks will do this in the hope that people, if given breathing space, will some day get back on their feet and make their full repayments. Under the proposals being prepared by the main banks, no more than half of an individual mortgage could be parked or frozen for a period of no longer than 20 years.

Such proposals, while imperfect, are long overdue. They were among the recommendations in the Keane report on mortgage arrears which was published last year. They are also a recognition from the banks that the tide is turning against them in the personal insolvency debate. The banks fought hard to ensure that secured debt was not included in any personal insolvency legislation, and when they lost that battle, they fought to have a veto on what arrangements could be put in place. They may be losing that battle too.

Grant believes that the banks’ plans are positive, although he points out that the segmented mortgages will need to be structured properly if they are to work.

“First, the frozen portion of a mortgage will have to be completely frozen, and it will have to be done so for a long period of at least 10 years. If people are to regain confidence and start spending in the economy again, they will need the comfort of a longer period. There is no point in freezing the debt for two or three years.

“There will need to be enough time for the market to recover. There are a lot of people out there who are waking up at 2am every night worrying about how they are going to pay their mortgages this month. This is the problem that will need to be addressed if the proposals are to have any hope of working.”