NAMA chairman Frank Daly, together with CEO Brendan McDonagh, yesterday reaffirmed the agency’s intention to start lending to residential home buyers and investors (and potentially commercial investors). The sketchy plans include incentives to protect buyers against the threat of future negative equity when purchasing NAMA held property.
This move by NAMA, which wholly differs from the original objectives of the agency, may be seen as artificially lifting a market that might not be ready at this time.
The mortgage-type initiative is expected to be available to buyers by October 2011 in conjunction with Bank of Ireland and/or AIB. Early indications are that a buyer, in the course of purchasing any NAMA held property would advance a contract deposit of approximately 10 per cent (as is customary), the main lending bank would advance a further 70 per cent mortgage and NAMA would have a charge or additional loan of 20 per cent in the event that the property holds its value or perhaps rises in value within a given period of years. In effect, the buyers are protected against further drops in the value of their new property by to a maximum of 20 per cent.
Daly acknowledged that such an initiative will need be structured to avoid any potential moral hazard issues that may arise.
For commercial buyers and investors, NAMA will likely take a more substantial cash deposit of approximately 25 per cent and then essentially transfer the existing property loan to the new buyer. The term of repayment will need to be much shorter than the standard commercial property mortgage of 15 years most likely half of that period, perhaps seven years (therefore higher monthly repayments). The effect for investors will be that if the property loses value, the buyer can surrender the property, losing only their initial cash investment (non-recourse).
Essentially, NAMA is not proposing to advance any new loans, rather, the agency will replace high risk borrowers with selected, and presumably, lower risk borrowers.
Much speculation has been offered over the past six weeks since NAMA announced its intention to get involved in the residential lending (or facilitating Irish home buyers), the devil is very much in the detail here and we have yet to see any specifics on this plan. However, it appears likely at this stage that NAMA, when disposing of property through public auction, will be in a position to support buyers with access to credit, through a main lender, when bidding. This will open up the BMV market to home buyers for the first time.
Finally, home buyers and investors are reminded that there are just five days to go before The Property Panel’s Pre Auction Seminar takes place in Dublin (information and booking details here).