Over the last fifteen years, the issue of uncompleted housing estates, commonly known as ghost estates, left behind from the housing boom has noticeably diminished. From an initial 3,000, the number has dwindled to a handful scattered across the nation. However, the problem of underoccupied homes, or ‘ghost rooms’, remains deeply ingrained in the culture.
The Economic and Social Research Institute (ESRI) reports that 66% of Irish homes are underused, a figure that ranks as third highest in the European Union and twice the average. This situation aggravates the current housing crisis across the country. According to ESRI’s earlier report, much of this can be attributed to specific cultural preferences in Ireland, with residents favouring houses over apartment living.
Yet, the issue is also underpinned by recent financial restraints for those prepared to downsize but faced with the inconvenience of selling their property and finding temporary rental space, in a market that is both scarce and costly.
However, this situation may change with the introduction of ICS Mortgages’s bridging loan product. This initiative, launched in the past week by parent company Dilosk, represents a revival of short-term lending that disappeared following the housing market crash. The scheme primarily leverages cheap customer deposits – supplemented by the interest banks earn on surplus cash stored with the Central Bank.
Designed for an 18-month duration, the product targets three distinct groups: homeowners looking to downsize; investors aiming to purchase buy-to-let (BTL) properties at auction or those intending to refurbish BTL properties. It offers borrowers the chance to pay interest-only for the duration of the loan or accumulate interest to repay alongside the principal. For those intending to downsize, the loan would be secured against the family home, which must be mortgage-free.
ICS’s bridging services, though not inexpensive, serve a useful purpose despite being meticulously evaluated. Currently charging a monthly variable rate of 1%, a 2% organising charge, and a 1% exit fee, they invite retired borrowers to validate their ability to make payments by showing sources of income such as rent and pensions.
Considering the expense, borrowers typically aim for rapid loan repayment, but this is often hampered by Ireland’s notoriously slow conveyancing procedure compounded by a high amount of probate sales, which some agents claim comprise at least one third of the market supply.
This product’s goal is to mitigate a supply barrier that causes the market to undersupply. Its coverage is a mere 0.6 % of Ireland’s housing inventory, a far cry from the ideal 3-4% marking a fully operational market.
Stockbroker Davy’s analyst, Diarmaid Sheridan, believes that the product would most likely aid “on the fringes as a specialist product”. Many mortgage brokers agree that it fails to cater to the broader market demand of assisting potential homeowners in moving up the property ladder.
The Central Bank introduced mortgage limits in 2015 tied to loan-to-income and loan-to-value ratios to shield both borrowers and lenders from irresponsible lending, effectively nullifying the boom-era strategy of lending an unsecured bridging loan to homeowners already bearing hefty mortgages.
According to Trevor Grant from Affinity Advisors and the chairman of the Association of Irish Mortgage Advisors, there is a crucial market gap due to the absence of a product that permits homeowners with significant equity to leverage that equity via a bridging loan to fund a deposit for a more expensive property.
Alternative lending institutions are continuously seeking to occupy specialised sectors, such as 80% home loans or equity-release facilities, due to a loss in their competitive pricing advantage over banks during 2022’s interest rates surge. These types of loans necessitate taking out a second charge, also known as a second lien, on a property. Nevertheless, such facilities have become rare following the economic crash in 2008.
Whether ICS will decide to broaden their horizons into this area is still uncertain. Yet, if they were to proceed, they would have to conform to the Central Bank’s regulations regarding combined borrowing. The main banks, humiliated by the crash, have confirmed that they have no intentions of re-entering the bridging finance sector.
“Domestic banks are deliberately shying away from potential loan losses and are mostly reticent when it comes to high-risk lending,” states John Cronin, a banking analyst and publisher of the digital Financials Unshackled newsletter. He adds that this is often the case even when “the risk-adjusted returns are superior”.
Banks don’t have to make such decisions. This is because non-bank lenders are increasingly occupying specialised sectors, like 80% home loans or equity-release facilities, due to losing their competitive pricing advantage over banks during the 2022 interest surge.
However, banks primarily fund home loans via low-cost consumer deposits, which are subsidised by the interest they earn from their surplus cash stored with the Central Bank. Currently, AIB and Bank of Ireland alone earn more than €2 billion annually from this strategy.