The mortgage market has slipped back by about two decades. But lenders are still keen to give loans – at least to first-time buyers

IN SPITE of all the economic progress and perceived wealth created over the past 20 years, the mortgage market has slipped back to where it was in the 1980s and early 1990s. Mortgage shops are closing down all over the country as lending institutions impose ever more strict conditions which continue to strangle the property sector.

Today there are three types of participants in the mortgage game.

Players:these are the lending institutions like AIB, Bank of Ireland and EBS who continue to offer mortgages provided the clients meet tough qualifying criteria. First-time buyers are only getting 90 to 92 per cent mortgages. Others trading up are having to comply with equally tight conditions related to their capacity to repay the mortgage and the prospects of continuity of employment.

Substitutes:these are the lenders who are standing on the sidelines watching the game but not ready to play. They are not interested in offering high loan-to-value and as a general rule charge a nifty little premium on their interest rates. Permanent TSB falls into this category. A long standing champion of residential lending, it now takes a much lower profile in the market. It does, however, still handle some new business but it has little appetite to regain the market share it held during the boom years.

Spectators: these are the lenders like Bank of Scotland who watch the game but have no appetite to enter the fray. The once great champion of tracker mortgages is now content to offer some of the most expensive deals in the market. For example, it is currently quoting monthly repayments of €1,482 for a €250,000 standard variable mortgage over 30 years. Bank of Ireland offers the same product at €968 per month.

Overall the best deals available are those for first-time buyers. Ever since the Government bailed out the banks 12 months ago with a multi-billion euro injection of funds, the lenders still anxious to expand their business have been concentrating on first-time buyers. That has not changed.

For investors, the business has been turned on its head. Where once interest rates were on average 20 to 30 basis points higher than those for residential customers, that margin has now increased to 150 basis points. Interest-only mortgages, once a major feature of the market during the buoyant years, are still technically available but on much more restrictive conditions. Interest in investment properties has greatly waned, not least because so many of them are now in negative equity. Another drawback is that investors are having to stump up 30 per cent deposits instead of the 15 per cent which was generally the norm in the good old days.

For investors unfortunate enough to have paid deposits and signed legal contracts on investment properties, the task of arranging funding seems to be getting tougher just as developers are flexing their muscles for a showdown in the courts. Some of the lenders are not even prepared to take into account the size and overall value of an individual’s property portfolio. All they are interested in is the borrower’s capacity to repay the mortgage and the prospects of continuing employment.

Despite this stand-off, Frank Conway of Irish Mortgage Corporation reports that it is still managing to get approval on more than 70 per cent of their mortgage applications. The problem, he says, lies in the low levels of take-up by potential buyers.

First-time buyers in particular are extremely anxious. “They are nervous about the property market because they believe prices could fall still further and they are nervous about their personal situation, especially the danger of losing their job.”

Conway says that while the economists tell us that the economy has turned, this needs to be translated into a recovery in both employment and house prices.

On the issue of house prices, we are badly in need of a reliable statistics service that will monitor selling prices and make them available within 14 days of the end of each month. The current index compiled by PTSB and the ESRI is too limited in scope to reflect what is really happening.

The task should be taken over by one of the new under-utilised State quangos linked to the property industry. With the Government now deeply entangled with the banks, there is a clear obligation to publish monthly figures that are broadly based and detailed in scope.