Finally, NAMA has announced the launch of their much anticipated pilot 80/20 Deferred Payment Initiative.
This initiative is available to home-buyers only and was designed to provide some level of comfort to buyers against likely future drops in the market, short term. Under this scheme, home buyers can, in theory, protect against market decreases and resulting negative equity to the tune of 20 per cent.
How the scheme will work:
- The buyer must be eligible for credit for the full purchase price and must qualify for mortgage approval of up to 90 per cent of the full purchase price from what NAMA deems to be ‘an approved mortgage provider’, likely to be one of the pillar banks i.e. Bank of Ireland, AIB (through the EBS) and Permanent TSB.
- The buyer may then choose from a selection of eligible properties, there are 115 listed for this trial scheme so far, listed below.
- 80 per cent of the full purchase price must be drawn down and handed over at the date of purchase.
- In five years time, the value will be independently assessed and if the market has not decreased further, the remaining 20 per cent will fall due in five years. This will be discharged directly to NAMA by the mortgage provider on behalf of the buyer.
It is important to note that while the initiative offers the home buyer 20 per cent protection from the risk of further house price declines for the first five years of the mortgage, it does not provide any remedy for apartment owners in five years time who wish to sell but cannot find a buyer. In essence, we may be breeding the next generation of home-owners who are stuck in apartments that they cannot sell when the time comes to move on, start a family or re-locate.
Also, 20 per cent might be enough to protect against future drops over five years, but not necessarily. In areas of over-supply and pending over-supply, together with relatively low demand, the key feature of this scheme for buyers, will be the purchase price.
Buyers Broker is urging caution to buyers to think long-term. Do not consider this to be a step on the property ladder as it may be where they remain. This scheme will be of great benefit to buyers who find their ideal home included and who wish to live in these properties long term – but only if the starting price is right.