EC to examine state mortgages

CONTROVERSIAL state mortgages for people already rejected by the banks are being investigated by the European Commission.

The loans, available since the first of January, have been criticised as being subprime of the kind that has contributed to the current collapse of the global economy and encouraging people to pay inflated prices.

The commission said it has received a large number of complaints about the Home Choice Loan scheme and has invited the Irish authorities to comment on the allegations and is examining the replies they have received so far.

Ireland South MEP Kathy Sinnott, who also raised the issue with the commission, said she was concerned about the loans introduced in last October’s budget.

She believes the scheme may distort the market, supporting prices as well as favouring developers of new housing in a market where there is a large oversupply of unoccupied new houses.

She has asked the commission to investigate if it favours new buyers over those who have previously owned a house and whether it creates a subprime mortgages and commits buyers to paying inflated prices in a declining market.

The mortgages can be for 30 years and cover 92% of the market value of a house up to €285,000 and be no more than five times the applicant’s annual salary. It only applies to new houses.

To be eligible applicants must have been turned down by at least two banks and be first-time buyers.

It is administered by the local authorities, who can add in criteria such as being in permanent employment for two years. There is only one interest rate with is current set at 4.4% variable.

The scheme has been criticised by economists as making loans available to people who may not be able to afford them, and setting a minimum price for new housing of about €300,000 at a time when the average price paid by a first time buyer is around €240,000.