The mortgage market, with the exception of a few lenders, rarely attracts praise for being the most innovative of business sectors.
Things have progressed recently with new structures, like First Active's current-account loan or Ulster Bank's special switching package, but still the majority of lenders display limited appetite for change.
Positive steps can come in small ways, however, with Bank of Ireland's new affordable-housing mortgage an example of such welcome shifts. The launch of the bank's "Breakthrough" mortgage, marked by the attendance of the "socialist" Taoiseach, Mr Ahern, came about two weeks ago. Given that the Taoiseach is not in the habit of attending financial-product launches, this must be something special.
The premise of the new loan is to allow people currently excluded from property ownership to enter the market. It is linked to the Government's affordable housing scheme, which has the same goal. Yesterday's Budget brought the matter closer to the forefront of Government policy, thus highlighting the financing of affordable housing as a growth area for the future.
Bank of Ireland's product is based on offering borrowers loans of up to 97 per cent of the purchase price. The normal policy of Irish lenders is to advance no more than 92 per cent of the price, with the remaining 8 per cent from the buyer. With average house prices in Dublin above €330,000, that deposit is unlikely to be found in most people's small change.
Breakthrough may also make repayments easier, as it is available for terms of up to 35 years. While longer terms mean more expensive mortgages, they can help budgeting at the start.
The interest rates on the loan will be the same as those on Bank of Ireland's other mortgages, with tracker, variable and fixed rates available. Currently, this involves rates between 2.49 and 3.6 per cent.
The catch with all of this is that the borrower must fit within the criteria used by local authorities to approve the loans that they already make available to lower income applicants. This is because the local authority and the bank will share the security that will be provided.
For a double-income household, this involves multiplying the gross income of the higher earner in the last income tax year by 2.5 and adding the gross income of the other earner in the last income tax year. If this is €92,000 or less, the borrower is eligible. The most anybody can borrow under existing local authority schemes is €165,000, while the Bank of Ireland offering sets no such limit aside from the ability to repay. In practical terms, this means that joint borrowers can borrow up to 4.5 times their income, provided the bank believes they can repay.
For single borrowers, the multiple will be up to five times income. Either way, moving beyond the €165,000 threshold (and thus being able to afford a house) will be a reasonable possibility for many.
At least 11,000 affordable homes are due to become available through local authorities over the next two to three years as the scheme evolves. This progress is sure to be noted by banks and building societies, with Bank of Ireland unlikely to be the only affordable housing lender in the private sector forever. For the moment though, the bank deserves some credit for being the first to embrace the trend.
