NAMA to provide guarantees to home buyers against falls in house prices

How will the valuations be decided? Will these be based on the same 'experts' who signed off on all those crazy valuations in the boom years?

The government should not directly interfere in the housing market or any other specific market. That should be a guiding principle written large in every government department as every time they do they screw things up.

Good point, Complainer. There are many things a homeowner can do to increase the value of their home eg. new kitchen, attic conversion etc. The way I see it, there will be no incentive for people to see their home value increase.

If NAMA think house prices may fall, why not apply the discount at this end? In the example they give, if they have a house at 200k, apply the 20% discount now and sell it for 160K.
Ok, this will result in a loss for NAMA but is it really going to make a profit?
At least in this case the bottom can be reached quickly and normal market forces can resume.

If this crazy scheme goes ahead, they should apply an index to the price paid to determine the value of the house. This would leave the owner free to improve it as they see fit. It would also save all the hassle about valuations.

onq said:

I recently gave a long account of why the economy overheated from the '90's to the Noughties
One of the problems was that ordinary house buyers were competing against developers and investors.

This didn't just "put a floor under" the house price market, it helped shoot it through the roof.
This created a panic amongst prospective home owners that they could never own their own home unless they bought NOW!
And the rest is the sad history of our property bubble...

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This theory was widespread in the media at the time (usually in the context of landlord-bashing) but it had no basis in reality.

What drove the panic in the first instance was a severe shortage of rental accommodation.

This caused rents to rocket to the point where some landlords were making obscene profits, which in turn led to higher and higher house prices.

Peter Bacon then drove new investors out of the market, and owner-occupiers piled in. As this happened, many tenants found themselves in a dilemma, not knowing whether they should continue to expose themselves to rocketing rents, or alternatively buy overpriced properties that many of them neither wanted, needed nor could afford. As we now know, unsustainable numbers of those tenants chose the latter option, encouraged by government, banks, property industry and media that they couldn't lose. The minority who continued renting were dismissed as losers and cranks.

The 'property ladder' mania continued and eventually became a sort of national religion. Needless to say, it ended in tears and penury for many people.

None of this would have happened, had there been a proper attempt in the 1990s to address the shortage of rental accommodation.

Excellent post T McGibney.

While these posts about what happened are indeed interesting, please limit this thread to the NAMA proposal.

is there a link to the site with the properties for sale? On RTE last night they seemed to show a website with NAMAs name on it but I can see it on nama.ie?

Roy

Any write-off (if there has to be one, I'm not in favour) should only occur when the property is actually sold and not just on a willy-nilly valuation at the whim of an estate agent whose toast was burnt that morning.

DB74 said:

Any write-off (if there has to be one, I'm not in favour) should only occur when the property is actually sold and not just on a willy-nilly valuation at the whim of an estate agent whose toast was burnt that morning.

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That's a good idea. Nama will only pay the deficit where the house has been sold and subject to a limit of 20% of the original price.

The % that is "rebated" by NAMA should be a flat percentage of the deficit. This would encourage the seller to get the best available price.

An alternative could be for NAMA to apply the 20% now on at least some of the property.
According to the report selling the residential units would be worth 135 million to the government in VAT. The max loss they would make if they had to defer the 20% is 200 million. So at worst a 65 million loss.

Why not sell a porportion of the houses at knock down prices to test the water?

Frank Daly gave an example of someone going to the bank to get a mortgage on a house valued at 200k but the bank only value it at 180k so they person will not get the full mortgage.
Maybe the bank's valuation is more accurate?

Brendan Burgess said:

As a wise man once said, and not very long ago...


It is extraordinary how people are opposed to government interference in principle, but have loads of suggestions for how the government should actually intervene...

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I suppose we are damned if we do and damned if we don't but this points to a measured approach.

Doing nothing is what we have done for the past two years and it has resulted in a contracting economy.

ONQ.

Complainer said:

Will this measure put a false floor under property prices, and keep them artificially high? Is this the 2nd boom on the way now?

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Yes, I have concerns too, it sounds like the ideal opportunity for people to become over extended once again!

Jim.

It depends on how you tell it. Is this a sale for 200K with 40K downside protection or is it a sale for 160K with NAMA getting 40K of the upside? I guess the latter would be seen as more palatable by many, even though it is the same thing.

The fact is NAMA has an oversupply of housing stock which if it wants to cash in would have to be at firesale prices. So I can see a logic which says "sell them at firesale prices (i.e. at current market prices) but retain an interest in any upside from those prices".

I don't see this as a taxpayer subsidy, this is a market based solution to the current position that NAMA finds itself in. Of course it should be available to any buyers, any talk of a restriction to owner occupiers makes the proposition look like some socially motivated taxpayer subsidy, which it is not. We are not suffering from a glut of people seeking homes to live in, we are suffering from holding a portfolio of houses which we can't sell. It should be open to everyone, so what if people accumulate portfolios of 5 or 6 of them?

I agree with all the practical objections that have been raised such as relying on subjective valuations and issues around home improvements. A "profit sharing" approach would seem to be a route to address some of these practical matters.

There are a couple of big assumptions in the proposal that are hard to reconcile. The assumption that anyone knows the 'market value' of the NAMA properties is a stretch. Set the prices too high and the government has conned the purchaser, set it too low and they conned the taxpayer. Of course we only know the answer to the market value in hindsight.



I think that the lending should be from the private sector or the state controlled banks. NAMA should provide a schedule of releasing properties on to the market. NAMA should provide a comprehensive property pack with each property including legal investigation of title and a surveyor / engineer analysis of the property. Potential purchaser could submit a bid in a tender format. This would give the purchaser the ability to work with the lenders on a proposed bid. For example the potential buyer goes to the bank and proposes to buy a NAMA property, borrowing 70% from the bank. The bank can see that they have the funds to pay the difference, assess the property, assess the ability to pay and back the potential purchasers proposal. On the last date, the best proposal for the property gets it.

The Alsopp Space auctions have shown how to determine the market value of Irish property but the auction format does not suit many purchasers.

Duke of Marmalade said:

It depends on how you tell it. Is this a sale for 200K with 40K downside protection or is it a sale for 160K with NAMA getting 40K of the upside? I guess the latter would be seen as more palatable by many, even though it is the same thing.
...

A "profit sharing" approach would seem to be a route to address some of these practical matters.

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This is a very interesting idea which has potential.

NAMA sells a house today for €100k.
The buyer borrows the money or pays cash or whatever.
The price is adjusted after 5 years by the house price index.
So if the house price index falls by 20%, NAMA pays €20k back to the buyer or directly to the lender to reduce the mortgage.

If the house price index rises by 20%, the buyer pays €20k to NAMA.

The practical problem is how would NAMA get the 20%? The buyer might be able to afford the 100k now, but they might not be able to afford the additional €20k after 5 years. NAMA could take a second mortgage with interest accumulating at a rate = ECB + 2%.

It would be complicated in practice, but in principle, it would be equitable.

People could buy the house now knowing that they would be protected against house price falls. They get to own their own home. They get to decorate it or improve it as they see fit.

The mortgage lender would be happier in that they have a protection for 5 years against negative equity.

Brendan

Or how about we look at what matters i.e. the affordability of mortgage repayments. A scheme whereby you can walk away from the deal if a deterioration in your personal finances mean you can no longer afford the repayments or perhaps a scheme or a scheme guaranteeing interest rate hikes don't render your payments unaffordable would be more sensible.

I don't like this idea that you are somehow better off if the market value of a house you have no intention of moving on from goes up.

If someone continues to have the means to make their repayments and if the level of the repayments doesn't increase where's the problem? Capital losses they are unlikely to ever realise?

It surely makes far more sense to focus on agreeing an affordable scheduling of repayments and only make exceptions where the persons personal finances change significantly.

Our problems arose in the first place from people viewing homes as some sort of volatile investment they should take a punt on.

DB74 said:

Any write-off (if there has to be one, I'm not in favour) should only occur when the property is actually sold and not just on a willy-nilly valuation at the whim of an estate agent whose toast was burnt that morning.

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1) Should only apply on sale

i.e. you are no worse off if you never intended to sell

2) Should not apply for someone simply moving house

i.e. you shouldn't be able to simply switch to a more valuable house for the same mortgage and deposit simply because general prices have fallen

How about NAMA go as guarantor for the option to convert to a non-recourse mortgage where an individual is out of work for over a year?

This way they'll take a hit only if
1) Markets fall
2) The individual loses their job
3) The individual can't keep up the repayments

To reiterate, the message we should be sending out is that fluctuations in the market value of your house only actually matter if you can't repay the mortgage