Nua's new sub-prime product to facilitate switching from vulture funds

I also attach the brochure sent to brokers.

Maximum LTV: 75%
Term: 3 or 5 years fixed
Rate: 5.25%
Maximum loan €750,000

Requirements:
5 years clean credit history

Who might benefit from this new product?
There are three aspects to this product which will help a small number of people who might not otherwise be able to switch.

1. Split mortgages can qualify immediately, no need to be making full repayments for 1 year or 2 years (AIB allows this as well, with BoI the borrower must be making full repayments for at least 6 months.)
2. No PRA is required - Proof of Repayment Ability. With the other lenders, you must show that you have been making the equivalent of the full repayments - through actual repayments + savings. So if the new repayment is €2,000 a month, but you were paying €1,500 on your split mortgage, with the other lenders, you must show that you were also saving €500. Nua will look at your future repayment ability by looking at your current account, salary and other information.
3. You can repay the mortgage up to age 80. Many borrowers who have capitalised interest will have extended the term beyond age 65. So they will not be able to switch to AIB or BoI because the latest age is 65. Nua will go longer.

Rates comparison

AIB variable: 3.75% to 3.95%

Analysis

The average rate for BoI or PTSB is about 2% lower than Nua is charging, so it's a sub-prime product.


AIB will take a switcher who is on a split mortgage without them needing to be out of the split for 6 months.
BoI requires the switcher to be out of the split for at least 6 months.

While they both look at applications on a case by case basis, they require a minimum of 2 years' clean credit history compared to Nua's 5 years.

If you are a good candidate for Nua, you are probably a good candidate for AIB or BoI so you should apply to them first.
If they refuse, then, by all means, apply to Nua.

Is it worth switching a split mortgage to Nua?

You have to crunch the numbers. If the warehouse is less than 30% of the mortgage it might be worth it.

Say you are on a split mortgage with Pepper where you are paying 8% on the active part of €200k and 0% on the warehouse of €100k. There are 20 years left

You will be paying €200k @8% or €16,000 interest a year.
If you switch to Nua, you will be paying 5.25% on €300k or €15,750

So not much difference.

However, with Nua, you will be repaying the capital on the whole mortgage and not just on the active part, so with Pepper, the repayments will be €1700 a month but with Nua, they will be € 2,000

My gut feeling is that most people who would qualify for the Nua switch, would be better off ending their split mortgage and making full repayments for 6 months or so and then applying for a mainstream product.

1. Split mortgages can qualify immediately, no need to be making full repayments for 1 year or 2 years (AIB allows this as well, with BoI the borrower must be making full repayments for at least 6 months.)
2. No PRA is required - Proof of Repayment Ability. With the other lenders, you must show that you have been making the equivalent of the full repayments - through actual repayments + savings. So if the new repayment is €2,000 a month, but you were paying €1,500 on your split mortgage, with the other lenders, you must show that you were also saving €500. Nua will look at your future repayment ability by looking at your current account, salary and other information.
3. You can repay the mortgage up to age 80. Many borrowers who have capitalised interest will have extended the term beyond age 65. So they will not be able to switch to AIB or BoI because the latest age is 65. Nua will go longer.

Click to expand...

This is a good summary of the differences, the only thing I'd add is that in practice the AIB/BoI position on Capital & Interest being paid for a minimum period is a bit greyer than the 0 months for AIB group and 6 months for BoI mentioned above. In fact the banks haven't given specifics on this and the best we have seen at this point is 1 year C&I from AIB and 3 years from BoI.

The greyness in itself is a barrier as once someone goes full C&I with a Vulture fund there is no going back. So this stopped lots of folks from doing anything at all. Therefore the clarity of the Nua offer that it really is no C&I will be really important in getting traction with anyone wanting to make the switch.

Nice to see another player in the market.

Their rate do make me a bit nervous though. They are great at the moment as most Credit servicing Funds (Mars and Pepper) are higher then it on average however they were much lower in the past. I wonder how NUA will reduce their rates if the Pepper and Mars reduce their below what they are currently charging.

The 5 years is the hardest part. A lot of these borrowers fall in and out of arrears. A very small percentage will be clean for 5 years.

Reading between the lines, it doesn't sound as if they are doing much business.


“When we started off, we knew we weren’t going to have the best rates in the market,” says O’Leary, Núa’s chief commercial officer, from the no-frills boardroom in the company’s offices in Dublin’s south docklands.

“So, we knew that we had to come up with products that had some tweaks compared to the wider market, to make them more appealing – without being reckless in any way. Otherwise, we faced not getting any business.”

....

He is also coy when asked about the value of loans it has either approved or seen drawn down.

However, he drops more than a hint on the minimum amount Núa aims to have out on loan at some stage in the second half of the year, when the company plans to refinance a bunch of mortgages on the international bond market, through a process called loan securitisation.

“The standard securitisation deal in the market is about €300 million, or €250 million to €300 million. We’re aiming to carry out such a transaction at some stage before the year-end, either in the third or fourth quarter,” he says.