Stopgap mortgages as we knew them remain a bridge too far even after ICS move

Over the past decade and a half, the number of post-crash blight of ghost estates has fallen from 3,000 to a few score unfinished boom-era housing developments dotted around the country.
The same can’t be said of a more culturally ingrained phenomenon: ghost rooms.
Two-thirds of Irish homes are underoccupied, according to the Economic and Social Research Institute (ESRI). That’s the third highest in the European Union and double the average. It has served to exacerbate the accommodation crisis in the State at the moment.
Ireland being one of the outliers is largely to down to “specific cultural norms” of an Irish preference to live in houses rather than apartments, the ESRI said in a report earlier this year.
But it has also been underpinned by a lack of funding options of late for empty nesters who are open to downsizing but face having to sell their home first and go through the discommoding process of finding a place to rent for a period – at a time when rental properties are scarce and expensive.
That is, until this week. ICS Mortgages, owned by financial services company Dilosk, launched a bridging loan product on Wednesday, heralding a return of a short-term lending offering that vanished in the wake of the crash.
The product – available for up to 18 months – is aimed at three groups: people trading down; investors seeking to purchase a buy-to-let (BTL) at auction; or people looking to renovate a BTL property. It allows borrowers to go interest-only for the period of the loan or roll up interest, to be paid back along with the principal.
In the case of those trading down, the facility is secured against the family home, which must have no existing mortgage or charge against it.
It is not cheap, either. ICS’s bridging facilities currently carry a 1 per cent variable rate per month, a 2 per cent arrangement fee and 1 per cent exit fee.
But there is a need for such an option, even if it has to be carefully considered. Borrowers who are retired would have to demonstrate capacity to make payments, including rental and pension income.
Given the cost, the aim of borrowers would be to repay the loan as quickly as possible. However, Ireland’s notoriously slow conveyancing process – made worse by the volume of probate sales in the market at the moment, estimated by some estate agents to account for at least a third of supply – doesn’t help.
But the hope is that the product will help ease a bottleneck that has contributed to the level of undersupply in the market.
On Friday, there were only 12,912 homes on the market, according to MyHome.ie, the online property platform owned by The Irish Times.
It equates to just 0.6 per cent of the housing stock in the Republic and is well off the 3-4 per cent level that is typically seen as a functioning market.
Still, it is likely to help supply only “at the margins as a niche product”, according to Diarmaid Sheridan, an analyst with stockbrokers Davy.
It does not address a greater market need, according to many mortgage brokers, of helping borrowers who are looking to trade up.
The loan-to-income and loan-to-value mortgage limits brought in by the Central Bank in 2015 to save borrowers and lenders alike from themselves thankfully rule out the return of a boom-era practice of lenders offering people already carrying existing toppy mortgages an unsecured bridging loan to land their next home. (The deals typically included the borrower signing up to take out the mortgage on the second property with the bridging lender.)
The real gap in the market is the unavailability of a product that allows people with high levels of equity in their homes to tap some equity through a bridging loan to finance a deposit for trader-upper property, according to Trevor Grant of Affinity Advisors and chair of the Association of Irish Mortgage Advisors.
Such a loan would require a second mortgage charge, or what is referred to as a second lien, against a property. These types of facilities have also disappeared in the wake of the 2008 crash.
It remains to be seen if ICS will expand its offering to this. If it did, the combined borrowings would still have to adhere to the Central Bank rules.
Sources at the main banks – chastened by the crash – said they have no plans to get back into bridging finance.
“The domestic banks are determined to avoid loan losses and are generally highly avoidant of higher-risk lending,” according to John Cronin, a banking analyst and author of online newsletter Financials Unshackled, “including in many cases where the risk-adjusted returns are superior”.
They don’t need to. Nonbank lenders have been moving increasingly into niche products – like such as home loans that allow borrowers repay up to 80, or equity-release facilities – because they lost their pricing edge over banks when market interest rates spiked in 2022.
Banks, on the other hand, mainly fund home loans from cheap customer deposits – subsidised by interest they’re earning on excess cash parked with the Central Bank. At the current rate, AIB and Bank of Ireland alone are currently earning more than €2 billion a year from this.