A major shake-up of the Irish mortgage market is on the horizon in the new year, with Bank of Ireland set to launch a new type of bridging finance to allow homeowners trade up or down without first having to sell the home they live in.
The new loan could remove a significant blockage in the supply chain that has seen many people with houses on the market reluctant to entertain bids and establish a chain that requires any would-be buyer to sell before they can buy.
Launching early next year and structured like traditional bridging finance, Bank of Ireland’s Trade Down loan will, in the first instance, facilitate homeowners keen to move to a smaller property and will allow funds to be released to enable the outright purchase of a new property in advance of the sale of their current home.
The loan will be available to all homeowners whether they are Bank of Ireland customers or not.
READ MORE
The bank is also exploring other product innovations, focused on supporting expanding families to trade up to a larger property.
Both properties will serve as security on the trade-down loan, with the sale of the existing property clearing the borrowing and any interest accrued within 12 months.
The maximum borrowing amount at drawdown will be 60 per cent of current valuation while the loan rate on the short-term bridging loan will be 7 per cent, more than double many of the fixed-rate mortgage offerings on the market.
Bank of Ireland says the initiative is designed to support new housing supply and was informed by the deliberations of a group of private sector representatives – drawn from home builders, equity investors, representative bodies and select professional services that it brought together.
The bank is the first of the big three domestic lenders to offer bridging since the option was pulled from the Irish market in the wake of the financial crash.
Dilosk-owned ICS Mortgages, one of the smaller players in the market, did launch a bridging loan product about a year ago to address what it said was a bottleneck in the second-hand property market.
The Bank of Ireland group also discussed the optimal mix of financing solutions for home builders to scale up activity across multiple sites and the important role of equity finance. The bank has written to the Government to propose a regular housing finance forum with the goal of working together to sustainably increase home building.
“The issues impacting housing supply are multifaceted and include a range of well-aired matters such as planning, zoning and the availability of serviced land,” said the bank’s chief executive, Myles O’Grady. “While these are outside the direct control of the private sector, we hold an important piece of the solution – financing for the construction of homes.
“This is why we invited a group of senior private sector leaders to come together to examine any steps that haven’t been taken to date, and consider any specific blockages that might be removed.
“These discussions informed the development of new interventions and ideas that could significantly enhance the financing landscape for home development and ownership,” he said.
Mr O’Grady said that, having considered the challenges faced by homeowners who need to move to a property better suited to their needs, “we have designed a very practical solution to pilot with our customers. This new product can help support the better use of existing housing stock in the market and we will continue to explore other options.”
