Ulster Bank 100% mortgage package causes surprise

Mortgage advisers have expressed surprise about the timing of Ulster Bank's launch of a mortgage for professionals that advances 100 per cent of a property's purchase price.

Mr Michael Dowling, president of the Independent Mortgage Advisers' Federation (IMAF), said lenders and mortgage advisers were taken aback by the timing in light of recent Central Bank concerns that people are being stretched beyond their means.

"We were a little surprised that the product came on the market at a time when the Central Bank has been warning banks about the amount they are lending," Mr Dowling said.

The maximum percentage of the property purchase price most lenders will advance to first-time buyers is 92 per cent.

However, Ulster Bank has introduced a special mortgage package that advances 100 per cent of the purchase price to certain categories of professionals up to a maximum of €400,000. Candidates for the 100 per cent loan-to-value (LTV) have to be 23 or over and earning a salary of at least €32,000.

The offer is limited to accountants, lawyers, doctors, dentists, vets, pharmacists and opticians.

Mr Dowling said Ulster Bank had "cherry-picked", gearing the facility towards a very select group of people who won't have any problem making the above-average repayments.

"The kind of customers they are defining as professional invariably have large salaries that will rise above the norm over a three to five-year period, rather than those who have to rely on pay agreements," he said.

However, he added that it was arguable as to whether lenders should be more inclined to lend to civil servants, who can only be sacked in exceptional circumstances, rather than the high-earning professionals listed by Ulster Bank.

The Ulster Bank facility is the first in the Irish residential market to officially advance more than 92 per cent of the purchase price - however, lenders have occasionally granted more than this figure in individual cases.

Securing 100 per cent finance means that if property prices dip, borrowers are immediately plunged into negative equity, owing more than the value of their property.

A spokesman for the Central Bank said it had never been prescriptive when setting down lending guidelines.

"Our main concern has been the borrowers' ability to repay. That would really be our starting position when looking at lending practices," he said.

A series of on-site inspections of lending institutions was initiated by the Central Bank earlier this year and will be continued by the Irish Financial Services Regulatory Authority (IFSRA).

These aim to ensure that institutions are not breaching lending guidelines in an attempt to build market share.

The fieldwork has been completed and IFSRA is in the process of analysing the results, according to the spokesman. The authority will be looking for evidence in the lenders' loan books that borrowers can repay.

"It's one thing saying you can repay, it's another proving you can," he said.

The inspections were prompted by figures showing that the annual growth in residential mortgages was running at 23.8 per cent at the beginning of March this year, compared with 10.1 per cent for other credit.

"It's with that in mind and the change in economic conditions that we have expressed concern," said the spokesman.

However, he added that lenders had to treat each loan individually.

IFSRA will come back to institutions if there are specific problems, but it will not impose any blanket rules, he added.

The amount advanced by Ulster Bank will be on a net pay basis, with the sum leading to repayments equal to up to 40 per cent of net monthly income.

Mr Derek Craig, product manager for mortgages at Ulster Bank, said there was "definitely discretion" to go over that, up to the €400,000 maximum loan limit.

"We will look at someone's incomings and outgoings and make sure the mortgage payment doesn't represent too much of a person's outgoings," Mr Craig said.

Mr Craig said the bank would consider extending the facility, which is designed to help certain professionals cut corners in their quest to own property, to other occupations in the future.

Like EBS's Family First product, it lends customers all of the purchase price, excluding stamp duty and legal costs, but unlike Family First, it allows them to do it all in their own name without the need for their parents to release equity from the family home or even act as guarantor.

In the UK, some lenders offer "graduate mortgages" for people with permanent jobs who left third-level education less than seven years previously.

Some products offer 102 per cent finance, provided parents go guarantor for any shortfall between what the graduate would be able to borrow under normal circumstances and the purchase price.