Repayment holidays don't come cheap

One of the big shocks attached to buying a home is how much it costs.

Before you can move in, you have the purchase price, stamp duty, legal fees, life assurance and house insurance to pay.

And, once you recover from the first dose of financial pain, you face paying thousands of euros to make the place habitable. Sofas, beds, cookers and washing machines all add up, usually to frightening sums.

The problem with these expenses is that they all come at once, making it difficult to budget. This is true for first-time buyers who have either lived at home or rented, allowing somebody else to bear all the big home-owning expenses.

Ever conscious of the pressures faced by new buyers and the potential to gain points in the marketing stakes, lenders have begun to recognise the short-term cash flow problems that buyers face. The financial institution to most recently step on this flexibility bandwagon is Permanent TSB with its new "Take 4" mortgage.

"Take 4" allows new customers to make no repayments during the first four months of their new loan. The idea, says the lender, is to help customers to deal with "the significant financial pressures associated with buying their new home".

The loan works on a simple premise: it allows borrowers to take a "payment holiday" immediately after drawing down the loan. Most other lenders offer this facility over the course of the loan, but it's a fairly novel notion to permit it at the very beginning.

The product is available on all residential mortgages (although not on buy-to-let loans) and can be applied to any of Permanent TSB's range of interest rates.

In practice, the borrower will tell the bank how long they would like their repayment holiday to last - one, two, three or four months. At the end of the period, the remaining repayments will then be recalculated to take account of the months missed at the start. The loan will still be repaid over the original term agreed - say 25 or 30 years.

A calculator on Permanent TSB's website allows interested borrowers to establish exactly how this works for them. The important thing to remember is that the holiday does not come for free - the lender will claw back the missed payments over time, thus making remaining repayments higher than they would otherwise have been.

Take a loan of €290,000 over 30 years at Permanent TSB's tracker rate of 3.1 per cent. A four-month holiday at the start will cost an additional €2,637.93 in interest over the term of the loan.

Other lenders offering similar facilities include Bank of Ireland, which allows first-time buyers to defer the first three months of repayments, or to simply reduce repayments by a fixed percentage for the first three years. ESB has launched a special product for first-time buyers that allows reduced repayments in the initial period, while Ulster Bank, AIB and ICS will also facilitate deferred starts, subject to terms and conditions.

Mortgage broker, Liam Ferguson of Ferguson & Associates, is cautious on such products however.

"They're effectively an additional loan of the deferred repayments," he says.

"This means you're paying interest for the full loan term on the missed repayments. It would often be cheaper to borrow three or four months' repayments elsewhere."