OnePlan facilitates borrowing by writing cheques

Permanent TSB product is a chequebook-based mortgage account forhigher-expense items, writes Laura Slattery.

"Chequebook mortgage. Don't make me laugh," ran Permanent TSB's television advertising campaign for its new mortgage product, OnePlan, launched last week.

Cue actors playing Permanent TSB customers cackling away at their good fortune.

OnePlan is a chequebook-based mortgage account, allowing customers to use a chequebook to pay for items such as holidays, consumer goods, education fees and home improvements. Like other equity release products, any funds used in this way are borrowed at home loan rates instead of at the sometimes twice as expensive personal loan rates.

OnePlan works by giving customers pre-approval to borrow up to 75 per cent of the value of their homes. Permanent TSB describes this as effectively establishing a line-of-credit for each customer: whereas other lenders require customers to draw down the full amount at the time of approval and begin repaying it immediately, OnePlan gives the customer more control over the approved funds.

Customers can then access the funds by using the OnePlan chequebook to pay for their purchases in the same way they would use an ordinary chequebook.

According to Mr Niall O'Grady, marketing manager for Permanent TSB, the OnePlan product can be the home of customers' debt. "That doesn't sound particularly attractive, but instead of taking out top-ups later, customers can get pre-approval at the same time they are getting their mortgage."

In other words, no time-consuming approval processes need to be entered into every time the mortgage holder wants to get a new fitted kitchen or take a round-the-world trip.

Availing of OnePlan costs the same as taking out a standard mortgage and can be done at the same time. In practice though, most people are not going to be writing cheques the minute they walk out of the bank manager's office. First-time buyers usually need every last cent banks are prepared to offer to pay for their property.

"Undoubtedly, it is pitched at people who have equity available in their house," says Mr O'Grady. Permanent TSB customers with existing mortgages can take out OnePlan for a third-party land registry fee of €30. A market valuation of the home will need to be performed and usually costs between €125 and €150.

The difference between the mortgage customers currently have and the amount for which they are approved is lodged to a holding account held in their names.

Using the chequebook provided, customers can withdraw their funds from this holding account on demand, in full or in part, subject to a recommended minimum of €3,000 being withdrawn at any one time.

Customers only pay interest on money they have withdrawn and the interest applied is the standard variable mortgage rate.

Borrowings from the holding account can be paid back over any term between five and 25 years. This does not have to be the same as the term of the mortgage. The €3,000 minimum is a guideline, not a fixed rule.

"We recommend people use the chequebook for higher expense items, although they are entitled to use it for lower expense items," says Mr O'Grady.

The bank does not want to be accused of irresponsible lending and says there are a number of safeguards in place to prevent borrowers being so enamoured with the attractive home loan rates that they accrue casual debts, failing to make any significant inroads into their mortgage.

OnePlan customers tempted to use the facility to pay for groceries will stick to their Visa or MasterCard as their preferred source of credit.

There are just 10 cheques in the chequebook as opposed to the usual 25, and the bank recommends that customers use no more than 10 cheques a year.

Standing at 75 per cent of the market value of the house, the maximum amount of equity that can be accessed through OnePlan is lower than can be borrowed under some equity release and top-up products, which are typically 90 or 92 per cent of the property value.

A regular statement shows customers how much they have borrowed through OnePlan and what facilities remain for further borrowings.

"Normal mortgage repayments need to be kept up," stresses Mr O'Grady. "You won't find someone about to retire who is still able to access 75 per cent of the house value. The amount approved would have been amortised down," he says. In other words, repayment capacity is taken into account at regular intervals.

Mr Eddie Hobbs, finance spokesman for the Consumers' Association of Ireland, discounts suggestions that Permanent TSB's product is irresponsible lending.

"I don't think we can go bashing lenders and saying you're too liberal. They're secondarily to blame, but if the consumer screws up, they're primarily to blame," he says, comparing it to blaming Irish Distillers for a hangover.

OnePlan is a welcome product, "provided it is used wisely", says Mr Michael Dowling, president of the Irish Mortgage Advisers' Federation (IMAF).

"If it is used rashly, well at the end of the day it is secured on your home.

"But I don't think people will be rash and say the money's there, let's spend it," he says.