Stage payments cost house buyers €175m

HARD-PRESSED Irish house buyers are paying an extra €175 million loan interest annually, according to the findings of a report on stage payments commissioned by the Law Society of Ireland.

The practice of builders operating a staged payment system, whereby buyers pay for homes in instalments as the work progresses, is costing purchasers €7,000 additional loan interest.

The stage payment system, which has been in operation in Cork for over 30 years, is also active in counties Limerick, Galway, Sligo and Mayo. Under the practice, new house buyers are being forced to pay builders up to 90% of the total price of the house before taking possession. The purchaser is asked to pay the full price of the site for the house up front, which can be 35% of the total purchase price. Buyers are then forced to make a number of stage payments as the building progresses and pay the last 10% on completion.

"In my opinion, the stage payment system has no justification for its existence, other than the historical ability of house builders to enforce it in certain areas outside of Dublin," said Patrick Dorgan, Law Society conveyancing committee chairman.

The unwarranted costs to the purchaser, together with the transfer of certain financial risks inherent in the system, was unreasonable, he said. "It is an anti-consumer and anti-competitive practice that needs to be stopped immediately."

The practice needed to be outlawed by statute, as it was clear the construction industry had no intention of stopping it, he said.

The Law Society report was conducted by Peelo & Partners, chartered accountants, who found that 25,000 houses were purchased each year on stage payments. "Builders vary as to the timescale of house completions, but enquiries indicate that it is not unusual for a period of 12 to 18 months, and more, to elapse between the payment of the initial deposit and completion of the house. It is reported in the legal profession that some builders are quite dilatory on completions, even having received the bulk of the selling price through the sale of the site and the stage payments. In the meantime, purchasers must finance the site purchase and the stage payments," the report says.

The report also found that the system has been re-emerging in some counties where it had been discontinued in recent years.