A lending company that allowed older people to borrow money using their homes as security against the loans has suspended business due to the higher cost of funding in the debt markets caused by the credit crunch. Simon Carswell, Finance Correspondent, reports.
Finance Ireland, an "equity release company" which traded as Ship, has suspended sales of its only product, Lifetime Mortgage, after it was unable to raise money in the debt markets at viable prices for the business.
Billy Kane, chairman of Finance Ireland, said the "three current curses in the market" - being an Irish financial institution involved in mortgages and the residential property market - meant that it was having to pay international banks double what it paid for its funding last year prior to the credit crunch.
"It is a very difficult time in our business. The reality is the credit markets are closed. The traditional lenders in our space, the US banks, have all gone home," said Mr Kane.
Ship had provided about €50 million in loans to 500 customers, averaging €100,000 per customer. The average age of its customers was 64. Funding was primarily provided by Ulster Bank, said Mr Kane, although funding was syndicated to international banks.
The company provided loans averaging up to 15 per cent of the value of the property. Borrowers do not have to repay the mortgage during their lifetime. Instead, loans would be redeemed from the sale of the property or by the estate of the borrower after their death.
The company has a further 200 customers who sold a stake in their properties to Finance Ireland.
Mr Kane said the company would honour any loans already approved to applicants who had not yet drawn down the loans. He said Ship had €4-€5 million in its approved new loans "pipeline".
He said the Lifetime Mortgage was regarded as low risk as it involved lending money on a very low ratio compared to the value of the property. However, international banks were waiting for the current annual reporting period to end before providing new funding generally. They were "waiting for everyone to bare all" to assess the full impact of the subprime crisis, he said.
Mr Kane owns 20 per cent of Finance Ireland. Two British investors - John Gunn and Nigel Wray, owner of Saracens rugby club in England, and a shareholder in Dominos Pizza - own a further 20 per cent of the shares between them. The remaining shares are held by a large number of shareholders, including friends, said Mr Kane.
Ship is not the only Irish financial institution to suffer financial difficulties due to the credit crunch. Subprime lender Fresh told brokers earlier this month that it has been unable to arrange "an alternative line of funding" after its lead provider, Credit Suisse, stopped lending to the company in November.
Fresh said it was unlikely to source new funding "in the short to medium term".
The State's largest subprime lender, Start Mortgages, is cutting its workforce by at least 10 per cent, while Merrill Lynch is evaluating its involvement in Springboard, its subprime joint venture with Permanent TSB.
