Lender puts 50% Limit on rural purchases

The_Conductor

Interesting times!

The Indo reports that First Active are limiting mortgages outside of Dublin, Cork, Galway, Limerick and Waterford, to 50%, and other lenders look likely to follow suit.......

A LEADING lender was accused of writing off rural Ireland after it emerged it will only fund half the value of investment properties in smaller towns and country locations.

By contrast First Active is prepared to fund larger loans, of up to 70pc, for investors buying properties in the bigger cities.

First Active told brokers it will now only approve the larger investment mortgages for properties in Dublin, Cork, Galway, Limerick and Waterford.

"This requires a property to have a city address, ie not County Waterford," the lender said.

In areas apart from cities, First Active will only fund 50pc of the value of the residential investment property, brokers were told.

The move has raised fears that other lenders will follow suit, meaning the affordability of property could become constrained by its location. It's also feared the move could create negative equity for households in rural areas.

Karl Deeter, operations manager of Irish Mortgage Brokers, said: "They [First Active] are not willing to take a risk on rural locations, which indicates they have no faith in anything outside of the cities."

Dermot Jewell, chief executive of the Consumers' Association, last night accused First Active of setting a dangerous precedent and called on the mortage provider to reverse its move.

Criteria

The new lending rule is the latest attempt by banks and building societies to tighten up their lending criteria. Lenders have also continuously raised interest rates as they attempt to dampen down demand.

A spokeswoman for First Active said the changes to its lending policy for investment properties were made to take account of the current property market environment.

fricatus

From today's Irish Independent


Lender puts 50pc mortgage limit on rural purchases


Tuesday August 12 2008

A LEADING lender was accused of writing off rural Ireland after it emerged it will only fund half the value of investment properties in smaller towns and country locations.

By contrast First Active is prepared to fund larger loans, of up to 70pc, for investors buying properties in the bigger cities.

First Active told brokers it will now only approve the larger investment mortgages for properties in Dublin, Cork, Galway, Limerick and Waterford.

"This requires a property to have a city address, ie not County Waterford," the lender said.

In areas apart from cities, First Active will only fund 50pc of the value of the residential investment property, brokers were told.

The move has raised fears that other lenders will follow suit, meaning the affordability of property could become constrained by its location. It's also feared the move could create negative equity for households in rural areas.

Karl Deeter, operations manager of Irish Mortgage Brokers, said: "They [First Active] are not willing to take a risk on rural locations, which indicates they have no faith in anything outside of the cities."

Dermot Jewell, chief executive of the Consumers' Association, last night accused First Active of setting a dangerous precedent and called on the mortage provider to reverse its move.

Criteria

The new lending rule is the latest attempt by banks and building societies to tighten up their lending criteria. Lenders have also continuously raised interest rates as they attempt to dampen down demand.

A spokeswoman for First Active said the changes to its lending policy for investment properties were made to take account of the current property market environment.

- Charlie Weston

Well, what do people think about this?

On the positive side, I think it could act as a support to those trying to buy property in the cities. Too many people have been incentivised into commuter villages 20 and 30 miles from work, where they're totally dependent on private transport. Our cities make a lot more sense than endless estates tacked onto Leinster villages, or big isolated mansions on the sides of hills.

Negatives? Well for a start it doesn't look to be that well thought out. What about well established urban areas on good public transport, such as Bray? The lender quotes "not Co. Waterford", but what about places like Castletroy in Limerick, which is actually in the county? Waterford has a few thousand suburban houses that happen to be in Co. Kilkenny, and Douglas in Cork is in the county, rather than the city area, as far as I know. I can see this being challenged...

ZYX

fricatus wrote: »

Well, what do people think about this?

On the positive side, I think it could act as a support to those trying to buy property in the cities. Too many people have been incentivised into commuter villages 20 and 30 miles from work, where they're totally dependent on private transport. Our cities make a lot more sense than endless estates tacked onto Leinster villages, or big isolated mansions on the sides of hills.

Negatives? Well for a start it doesn't look to be that well thought out. What about well established urban areas on good public transport, such as Bray? The lender quotes "not Co. Waterford", but what about places like Castletroy in Limerick, which is actually in the county? Waterford has a few thousand suburban houses that happen to be in Co. Kilkenny, and Douglas in Cork is in the county, rather than the city area, as far as I know. I can see this being challenged...

No one is going to challange it. They will just get mortgage from a different company. This says more about First Actives financial situation (if true) than anything else. They are basically saying we are closed for mortgage business. They must be extremely exposed to sub prime market. Basically do not buy shares in first active.

jetski

^ Blarny if i must say....

tHE vAGGABOND

boggers have been dragging us poor city folks down for years, paying no tax and getting grants from everyone for everything

About time we cut them loose

bangersandmash

ZYX wrote: »

This says more about First Actives financial situation (if true) than anything else. They are basically saying we are closed for mortgage business. They must be extremely exposed to sub prime market. Basically do not buy shares in first active.

Can't agree with you here. To me this says more about FA's lack of confidence in the investment market in rural locations, which is unsurprising given the number of empties in many such areas. These properties were mainly aimed at investors, but are now lying idle and are likely to fall further in price before they are bought up. Indeed some of the shoddily built terraced houses and apartments in small villages may never be bought. So why would FA risk lending on such properties? I agree that their address-based criteria sounds very rough and haphazard, but I assume this is for logistical reasons.

To be honest I can't imagine such investment properties make up a substantial part of their business at the moment, so saying they are closed for business is pure hyperbole.

The_Conductor

I think its a positive development. It will accelerate the decline in rural property prices- which will make property more affordable for locals. There was a perception out there that Dubliners were trying to escape the capital and could be milked for all they were worth in rural locations- as they will have gotten good money for selling their Dublin homes- which makes rising the rural prices justifiable. In practice- it excluded a lot of locals from the market, and accelerated rural depopulation in some areas. Time will tell whether its unravelling is a positive or negative on the local level.

Joseph Kuhr

Firstly the topic is misleading as they are only talking about investment mortgages.

smccarrick wrote: »

I think its a positive development. It will accelerate the decline in rural property prices- which will make property more affordable for locals. There was a perception out there that Dubliners were trying to escape the capital and could be milked for all they were worth in rural locations- as they will have gotten good money for selling their Dublin homes- which makes rising the rural prices justifiable. In practice- it excluded a lot of locals from the market, and accelerated rural depopulation in some areas. Time will tell whether its unravelling is a positive or negative on the local level.

I don't think its anything as in depth as that although I'm sure they'll brass it up as much as they can. As already pointed out this just shows the state of affairs of First Active.

SimpleSam06

smccarrick wrote: »

meaning the affordability of property could become constrained by its location.

Meaning the price of rural investment properties will be constrained is what they mean.

fricatus wrote: »

I can see this being challenged...

How would you challenge it, its well within the rights of a company to set its criteria for business, as long as they don't fall into the predatory lending bracket, and as far as I can see, this is the exact opposite.

smccarrick wrote: »

I think its a positive development. It will accelerate the decline in rural property prices

Exactly, there is plenty of land available for homes outside the major cities, some of it in nice locations, but you have old farmers that have had the land in the family for generations, and they are setting fairly ludicrous prices on any sort of plot. The prices for smallish homes in villages outside Galway are comparable or outstrip the prices of houses in the city centre in some cases, for example. Barna village apartments for 300k ffs.