Broker's 'negative equity insurance plan'
HOMEBUYERS may be offered protection from negative equity in a new scheme offered by a financial services company.
The new so-called valuation bond will in effect "insure" borrowers from a drop of up to 20pc in the value of the property.
IFG Financial Services, based in Dublin, said that banks and developers will be able to provide this assurance to potential buyers in an attempt to kick-start the mortgage market.
To purchase a home valued at €200,000, the individual would have to provide the standard 10pc deposit of €20,000 while the bank would provide the remainder mortgage of €180,000.
However, IFG said that €40,000 of the purchase prices would be put into a bond and then placed in a trust fund.
The buyer would make repayments on the €180,000 amount.
After a period of five years, the property price will be valued independently and if it has increased in value then the buyer continues to make repayments in the normal fashion.
However, if the price of the property has fallen, the trust fund bond would then be called in, and up to €40,000 will be written off and the repayments recalculated.
And if the value of the property falls by less than 20pc then only a portion of the bond would be called in and written off.
The cost of providing the negative equity bond would be either absorbed by the bank providing the mortgage or the developer selling the property.
NAMA is planning to introduce a similar scheme next month on a pilot basis for some of the apartments on its portfolio.