GE Capital Woodchester is set to buy 50 per cent of IFG Mortgages, the home loans unit of IFG Group, for €13.3 million in a deal due to be completed in early January.
Under the terms of the agreement, IFG will receive an initial payment of €10.35 million for 50 per cent of IFG Investment and Mortgage Services and IFG Mortgage and Assurance Services.
It will receive a further €1.2 million before the deal is completed. The remaining €1.75 million will be payable in cash within six years of completion. The joint venture will be known as Mortgage Business Solutions (MBS).
IFG chief executive Mr Richard Hayes yesterday described the deal as "very reasonable". He said the money raised in the sale would be used to reduce IFG's debt. He explained that this in turn would cut its interest burden by €500,000 a year.
IFG is earning €1.8 million in profits from its mortgage business. Mr Hayes said the interest savings would partially offset the €900,000 reduction in those earnings that would result from the sale of 50 per cent of the unit.
He predicted that the remaining €400,000 would be recouped from the fees earned through the sale of a new re-mortgage product through IFG's distribution network in this country. Both companies plan to offer the loan to Irish borrowers excluded by other financial institutions because they have bad credit records.
GE Consumer Finance will finance the loans while Mortgage Business Solutions will use its distribution network to offer them to consumers in return for fees and commission payments. The loans will be offered at 1 per cent to 2.2 per cent above standard variable rates.
Mr Seán Webb of GE Capital Woodchester yesterday said both companies had been piloting the product in this country over the past six months. They processed €100 million worth of loan applications under the scheme, and approved a high proportion of those. He said it was aimed at the 10 per cent of the Irish market that lenders regard as "near prime". These are wage-earning homeowners with a credit profile damaged by a previous lapse, but who have the ability to repay a loan. The product is a re-mortgage rather than a loan to finance the purchase of a new home.
The loans will vary between €30,000 and €400,000 over periods of up to 30 years. The loan to asset value ratios are likely to be in the region of 50 per cent. Mr Webb said the risk involved in taking on borrowers with a poor credit record justified the extra interest charges.
He emphasised that all applications would be scrutinised individually, and said the financial institution would require up to three months' salary records. He added that they would be stress- tested for their ability to repay should interest rates increase.
IFG Group closed at €1.10 on the Dublin market yesterday, a fall of 17 cents or 13.4 per cent on the previous day's close of €1.27. Its brokers, NCB and Dolmen Securities, both rated the stock as a "buy" on the back of yesterday's news.
