irishtimes.com – Last Updated: Tuesday, May 8, 2012, 16:31Above: Some of the homes being offered for sale under the Nama deferred payment initiative

SIMON CARSWELL, Finance Correspondent

The National Asset Management Agency has unveiled its deferred mortgage payment plan in an attempt to sell residential properties on its books and stimulate sales in the moribund property market.

The initiative is designed to encourage potential buyers who can secure mortgage approval but who postpone their purchase fearing that property prices will fall further.

Nama listed 115 houses in 12 developments in Dublin, Meath and Cork where the scheme will be piloted before the possibility of being introduced on more properties.

Known as the “80:20 Deferred Payment Initiative”, the scheme protects buyers from negative equity and decreases of up to 20 per cent of the value of their property over the next five years.

Only 80 per cent of the agreed sale price will be paid upfront and the remaining 20 per cent will be paid after five years if the property does not fall in value.

How much, if any, of the 20 per cent to be paid will be calculated on the basis of an independent assessment of the property’s value in five years’ time, Nama said.

“It’s a good offer for buyers who want to remove any uncertainty from their purchase about price drops,” said Nama chairman Frank Daly at the launch of the initiative in Dublin today.In a nutshell: How the Nama scheme will work 

The mortgages will be provided by Bank of Ireland, AIB subsidiary EBS and Permanent TSB. Buyers will have to produce a deposit of at least 10 per cent of the value of the property to qualify for a loan.

Borrowers will make repayments as if they were paying the full mortgage and if the property falls in value, the higher repayments will go towards the reduced mortgage. Existing home owners and first-time buyers can apply to purchase but the initiative is not open to investors.

Mr Daly said that it was one of a number of measures introduced by Nama aimed at stimulating the market to “a sustainable level but nothing more than that”.

“We do not aspire to the type of market that was this country’s misfortune to have experienced in recent times, a market which was driven by irresponsible lending, unsustainable prices and inglorious hype,” he said. 

Nama first announced the deferred mortgage plan last year but the unveiling of the scheme was delayed as it “took a bit of time to put all this together”, said Mr Daly.

The scheme required approval from the European Commission under state aid rules. Nama also had to agree details with the Central Bank, the banks and government departments and to ensure that the systems were in place to deal with the initiative, Mr Daly added. He said the commission were “very comfortable” with the initiative.

Nama chief executive Brendan McDonagh said that payment deferrals may eventually be offered on a total of 750 properties in more locations if the pilot scheme was successful.

Based on average prices of €200,000, Mr McDonagh estimated that Nama could defer a total of €30 million of €150 million worth of residential property purchases under the initiative.

The agency had 10,000 residential properties that could be lived in immediately and a further 4,000 properties which still had to be built or completed, he said. Nama has valued the agency’s residential properties at €3.3 billion, Mr McDonagh said, and that 75 per cent of these properties were apartments for which there was little demand among buyers.

He said that the agency offered the initiative to foreign-owned Irish lenders that had no involvement in selling loans to Nama but they declined. Mr Daly said that they could still participate.

Mr McDonagh said the pilot scheme was targeted at a potential shortage of family homes at an average price of €300,000 and that no apartments were being offered initially.

There are 62 houses in Co Cork eligible for the initiative in the pilot scheme and 53 in Dublin and Meath. All the properties are on estates where the majority of the houses have already been sold.

Among the properties are two houses remaining in the Browns Barn Wood development on the Naas Road in Dublin which are priced from €335,000. There are 18 houses for sale in a development on the Killeen Castle estate near Dunshaughlin in Co Meath which are priced from €270,000 to €410,000.

There are a further 29 properties in the Devlin Banks development in Naul, Co Dublin priced from €175,000.

Asked about the effect on existing home-owners on these estates who might be trying to sell their properties, Mr McDonagh said that Nama could only deal with “what is in our bailiwick” and that it had a 100 per cent exposure to these properties.

Mr Daly said that filling vacant houses through sales can affect “the overall value of everything in an estate”. 

The prices sought represented what Nama believed was “fair value”, said Mr McDonagh, and would not be renegotiated as part of the initiative. He denied that the initiative was a subsidy for consumers or that it would prevent the market “finding a floor”. It encouraged transactions while the property market was still declining, he said.

Nama was not gambling with 20 per cent of the property price but that it was taking a “very managed risk”, said Mr Daly. “It is based on our view, an optimistic view I suppose, of the property market and the prices that will be there in five years’ time,” he said.

Citing CSO figures, Mr McDonagh said house prices had fallen between 56 and 57 per cent for family homes in Dublin and 60 per cent for apartments. Prices outside Dublin and in rural areas were lagging the CSO price declines, he said. Mr Daly said that there were “tentative signs” of increased sales in certain areas.

In separate statements, AIB and Permanent TSB welcomed the initiative.

“Nama is tackling one of the key reasons people cite for putting off their purchase decision,” said Niall O’Grady, head of marketing at Permanent TSB.

The Professional Insurance Brokers Association, the country’s largest group of independent financial brokers, said that the initiative was “very limited in scope” and that the association was concerned about the length of time taken to come up with this “limited” offering.

“It also addresses just one problem in the market and by no means the most intransigent concern over negative equity over the next five years,” said Rachel Doyle, chief operations officer with the association.

Set up in 2009, Nama acquired property and related loans with a face value of €74 billion from five lenders for a price of €31 billion in an attempt to purge the lenders of their most toxic loans following the economic crash.