Time For Non-Recourse Mortgages?
Is it time to introduce non-recourse mortgages into the banking system ?
Currntly, most people who bought houses in the past 7/8 years are now looking at negative equity in their property. As property prices soared during the Celtic Tiger years, the banks relaxed their lending rules to allow people to pay the prices being sought by the developers. Where once the rules of applying for a mortgage were quite strict, towards the end of the property boom the lending institutions were happy to push whatever money was needed to get people onto the property ladder.
We now find ourselves in a situation where NAMA has taken on the developers debts and the banks have been given huge capital injections of taxpayers money. So where does that leave the mortgage holder ? He/she has no safety net and will still have to pay off the amount borrowed from the bank, even if the house is now only worth 50% of it's original purchase price. This type of mortgage is called a recourse mortgage.
A non-recourse mortgage means that if a property drops in value, only that amount is liable to be repaid to the bank. If non-recourse mortgages were available, the banks would have to be much more prudent in their lending policies as they would take a hit if the property value decreases. This sharing of the risk would be equitable but would need legislation as banks would be highly unlikely to introduce this type of mortgage themselves.
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