Group to offer fixed home loans

HOMEOWNERS could soon be able to fix their mortgages for 25 years, pay less and face no costly penalties for paying off their loans early.

Irish Life and Permanent is one of a number of European banks behind a new consortium, the European Mortgage Finance Agency (EMFA), which wants to market US-style long-term, fixed-interest mortgages that could be refinanced as interest rates change.

Rob Thomas, general manager of EMFA said the move could reduce the cost of mortgages by 0.25% to 0.4% and abolish the need for redemption penalties.

Jim Power, chief economist at Friends First, said a move to fixed-rate borrowing would bring greater stability to the Irish housing market. He also said a Europe-wide mortgage market would open the door to so-called “intergenerational mortgages”.

These are loans taken out for periods as long as 50 years and allow homeowners to borrow larger amounts, with lower monthly repayments spread out over longer periods. These mortgages are becoming more common in certain European countries, such as Germany. Irish mortgages are typically taken out over 25 or 30 years.

Irish Life and Permanent said the project was still at an early stage. “It’s an idea that’s worthy of support but it will be some time before it takes off,” a spokesman said.

Dermott Jewell of the Consumers’ Association of Ireland said borrowers should be cautious and should study new product offerings carefully before committing to them.

Support from the EU will be required before EMFA can offer products to consumers. The project is backed by France’s largest mortgage lender, Credit Agricole, and Spain’s biggest lender, BBVA. The group will have no direct contact with consumers.

It will operate by linking mortgage lenders in each country and aims to build a single mortgage market within Europe. EMFA said the project would be sponsored by the EU but would involve private sector capital.

Fixed-rate borrowing over long periods is less popular in Ireland than on the continent. Irish borrowers are more exposed than those in Europe to changes in interest rates.

In Britain, where borrowing patterns are similar to Ireland, the low take-up of fixed-rate borrowing was a major factor in Chancellor Gordon Brown’s decision to delay entry to the euro earlier this year.

Mr Brown feared the effect on the British housing market of an increase in interest rates. While an interest rate hike would have a serious effect on Irish borrowers, its effect in other countries, where fixed-rate borrowing is the norm, would be less significant.