Irish lenders are unified in dismissing the chances in the Republic of a UK-style policy that singles out certain areas for smaller house loans due to fear of negative equity problems in the future, writes Una McCaffrey

Repossession. There's a word that doesn't feature in conversation too often these days, particularly not in the same sentence as "house" or "mortgage".

It wasn't long ago that the issue loomed large in the subconscious of the average Irish borrower, however; in 1995, seven short years ago, about four homes were repossessed across the Republic every week.

Happily, the figure has been falling steadily since, with just 33 repossessions occurring throughout 2000, and just 21 in the first nine months of 2001. It would seem that the Republic has succeeded, for now, in stepping from the shadow of the repo-man.

In Britain, the picture looks a little darker, at least in the eyes of two prominent mortgage lenders. NatWest and Alliance & Leicester - which between them reportedly account for 7 per cent of Britain's £793 billion sterling (€1,290 billion) mortgage market - last week said they were introducing geographical restrictions on how much they would lend to mortgage customers.

The two have stated that they will only be prepared to offer 90 per cent of a home's value in certain areas, compared to the usual 95 per cent. The areas affected by the policy include parts of London, Brighton and Southampton, all locations where the lenders feel there is a danger of negative equity (and presumably, repossessions) hitting the market in the future.

A spokesman for one of the institutions involved said this development reflected the aftermath of September 11th, when evidence arose of overheating in the areas in question. The theory being advanced is that mortgage-holders are being shielded from getting themselves into bad debt through falling house prices.

In reality, the institutions would seem to be protecting themselves from the kind of negative-equity Armageddon that hit the British property market in the late 1980s, when interest rates rose and many homes were lost.

Back on this side of the Irish Sea, the question arises whether a similar policy could ever come into application in parts of the Republic. Take north county Dublin, for example, where house-building has reached unprecedented levels in the past couple of years - only to be greeted by the thousands of job losses announced in the area in recent months, with Aer Lingus adding most to the total.

Could an area such as this fall foul of a blackspot policy among Irish mortgage-lenders concerned about the potential for falling prices? The good news for potential mortgage-holders is that the answer, for now, would appear to be no, according to the reaction of a cross section of Irish lenders contacted by The Irish Times this week.

All are unified in dismissing the chances of particular areas being singled out for harsh treatment on the mortgage front, and while none will definitively rule out the option in the future, few can see how it would be practicable.

"The English market is very different from Ireland," says AIB's head of home mortgages, Mr Aidan Clarke. "The products are the same and the way you would assess lending are the same, but the valuation is much different. There are huge swings in the property prices there."

The fact is, according to Mr Clarke, that what happens in Dublin prices will eventually happen in Cork, Limerick and anywhere else in the Republic anyway, since the State is so small. In other words, you'd need to blackspot the entire population before such a policy could be implemented.

In Britain, however, the market condition in London might bear no resemblance to that of rural Wales or north-eastern England, and thus the two could be easily separated.

"Given the demographics in the country at the minute, and the growth in the market, it wouldn't be a factor," says Mr Clarke of the Irish market. "We would be taking decisions nationally."

AIB's national policy is currently governed by a 92 per cent upper limit, although Mr Clarke admits there is room for manoeuvre on that in particular cases.

Other mortgage lenders take a similar view, with most applying the same 92 per cent threshold regardless of where a home or buyer is located. Mr Kevin Johnson, head of the residential mortgage market at EBS, says no factor is more important in a lending decision than the mortgage-holder's ability to repay, a quality that is always assessed on an individual rather than geographical basis and in accordance with strict Central Bank guidelines.

"We try to calculate an allowable income," he says. "There are various factors in that, as well as basic pay.

"Some people have certain types of overtime or commission income, for example. We try to understand how sustainable that is."

Spokesmen for First Active and Irish Permanent, the State's largest mortgage lender, view the British development with a comparable level of circumspection, as does mortgage broker Ms Sarah Wellband of REA Mortgage Services.

Ms Wellband points out, however, that there is a historical precedent for such a policy in parts of Dublin where drug-related crime rates were high in the past, thus reducing the resale value of property and raising the spectre of negative equity.

Perhaps understandably, lenders were less than enthusiastic about getting involved in such areas.

"I don't think that would happen here, that they could just put a blanket reduction on particular areas. In the past, there might have been some restrictions on certain areas of the city, but that really doesn't happen at all now."

Ms Wellband says that she can partly understand the policy being adopted by the two British lenders but, like the lenders, views the Republic as a different case.

Taking the north county Dublin example, she says that just because the industrial base there has been hit does not mean everyone in the area is out of a job.

"People live in Swords and work in town," she says, again highlighting the differences in geographical scale between the Republic and Britain. "You wouldn't have to go to Yorkshire to find another job," she says, thus dismissing the notion of large-scale black spots to be avoided by Irish lenders.

To say that the mortgage market is a static creature with no potential to respond to external conditions is naive, however. Taking the past year as an example of how things can be transformed in a short time, we have seen house prices fall by as much as 6 per cent in some areas, the rent-a-room scheme has entered the equation and, in the wake of last December's budget, investors have once again entered the market.

While banks and building societies say lending policies have remained the same over the period, Ms Wellband has noted a shift in the mortgage approval process, particularly when it comes to taking the aforementioned additional income into account.

"The criteria have remained stable, but their application has changed slightly. Previously, if someone was in the computer industry or tourism, for example, they would get overtime or bonus payments and the bank would take a proportion of these into account."

Lenders are now more realistic, she says, taking more regard of guaranteed rather than potential income.

"They see what's going on and they're just that little bit more prudent."

So what of repossessions? Have the days of losing the roof along with your shirt disappeared from the equation altogether?

For a repossession to occur, a householder needs to fall behind with their mortgage repayments on a consistent basis and the lender needs to consider that their liability is only salvageable through selling on the home.

The lenders point out that in an environment where interest rates are lower than ever before and the average new loan is about €120,000 (£94,500), a situation needs to turn very nasty before negative equity and, subsequently, repossession enter the picture.

Renewed investor activity in the market, a phenomenon reported by all lenders contacted last week, will go further to reduce the already remote chances of a property collapse, they say.

There's also a psychological dislike of the very idea of repossession, according to Eimer O'Rourke of the Irish Mortgage and Savings Association: "The bottom line is that no institution wants to repossess a property. It's not in the institution's interests and it's not in the borrower's interests."

This aspect of the issue is also noted by Mr Kieran Murphy of Threshold, the housing rights association that was at the forefront of the repossession phenomenon several years ago.

"We're a small country and banks don't like to take that kind of high-profile action," he says, referring to the virtual absence of repossessions in the Irish market as it stands.

"It wouldn't be beyond the realms for people whose income has been interrupted," he says, "but we're not picking up any evidence of it. You get a sense that things are quite good."