Lending firm has repossessed 30 homes since 2005

A LENDING company has repossessed 30 homes since entering the Irish mortgage market in 2005, it emerged yesterday.

The company, which has not been named, specialises in the sub-prime market— lending to people who would not qualify for mortgages from the big financial institutions.

MEP Gay Mitchell said giving mortgages to people, normally considered too poor to borrow money, was reaching dangerous proportions in Ireland.

There are now between 10,000 and 20,000 such mortgages, each worth between €200,000 and €400,000, based on the average loan size in Ireland, Mr Mitchell said.

In the US, there are now serious problems with sub-prime lending while, in Britain, the Financial Regulator has begun to investigate unwise lending by some companies specialising in that end of the market.

Sub-prime lenders are relatively new to the Irish market and, generally, they charge about twice the going mortgage rate to compensate lenders for higher risk.

Such lending is projected to grow to €4 billion this year, encouraged by estate agents who were forecasting house price increases at a time when, in fact, they were falling, he said.

Mr Mitchell was presenting his report on the European Central Bank to the European Parliament when he suggested the ECB should take greater account of the impact of interest rate rises on the housing market.

He said Ireland’s Financial Regulator, the Competition Authority and the Director of Consumer Affairs should examine the development of sub-prime lending.

He accused estate agents of talking up properly prices at a time when they were in fact falling, as has happened over the past six months.

“Why are those who have a vested interest in talking up already inflated property prices allowed to make unaccountable and, strangely, similar forecasts which are now proven to be totally wrong without any penalty?”

Mr Mitchell said that last year in Ireland, house prices were forecast to increase by 9% by estate agents Hooke and MacDonald; between 8% and 10% by Sherry FitzGerald; 7% by Friends First and IIB, while Allied Irish Banks forecast increases of between 3% and 6%.

The recent Irish Permanent TSB/ESRI index showed house prices fell by 2.1% between January and May 2007, and a further decline was expected.

Economists have shown that once house prices have been driven up by low interest rates for several years, and once they start to rise, prices start to decline 18 months to two years later.

He said it was scurrilous that many Irish people, including many struggling first-time buyers, bought houses at inflated prices and will be making repayments for up to 40 years.