Money Matters

THE GROWTH OF THE SUB-PRIME MARKET by Tony Murphy

With unprecedented growth in Ireland over the last 15 years, the rise of non standard and sub-prime lenders is yet another indicator of the “soft landing” we can expect in the property market here.

Non-standard and sub-prime lending covers a specialised market, 10% of the entire mortgage market, providing mortgages for people excluded from traditional lending programmes and who do not meet the lending criteria of the mainstream lenders. Borrowers who have an impaired credit history i.e. missed payments, credit cards revoked, have current arrears or even in very special circumstances, had judgements registered against them together with those borrowers who have irregular or seasonal employment or cannot prove their income “self certify” it. Marital situations and non-national mortgages are also catered for by these sub-prime lenders. Effectively this is seen as a short-term facility for these borrowers awaiting the green light to be accepted back by the mainstream lenders and cheaper options.

There are two main players currently in the Irish market, Start Mortgages and GE Money Mortgages. This year will see Shared Home Investment Plan (SHIP) enter this market with IIB Homeloans and Permanent TSB next in line to offer these products. As there are so many different criteria governing these loans, let me just highlight some of the important ones.

Start Mortgages will allow self certified income with no arrears up to €150K and €125K, otherwise while GE’s maximum for self-certification is €75k including first time buyers, this is where the mortgage intermediary earns their keep.

For employees, Start accept 100% salary, commission, overtime, bonus, maintenance, pension and €6,000 Rent-A-Room Allowance. Maximum term 40 years (Start), 35 years (GE Money), both to maximum age 80. If one mortgage payment missed, 85% maximum loan to value. Arrangement fees, 1% to a max of, €1,800 for new customers (Start) 0.5% (GE)

In terms of the product itself, interest rates are obviously higher than the mainstream lenders while the larger the arrears; the higher the interest rate rule generally applies. Start’s variable interest rate is 5.95% - interest only option is also available with both lenders, with an option to fix at + 0.30% (no exit penalty) for 1, 2 or 3 years. GE offers a variable rate of 6.45% - same rate for a 3 year fixed. While sub-prime lending can seem complicated, your mortgage adviser is here on hand to explain all the options.