I came across an interesting new mortgage idea recently.
Ulster Bank has launched a new mortgage initiative which offers customers some protection against falling house prices. The product is known as ‘Secure Step Mortgage’ and the idea is that customers are offered protection against falling house prices over a five year period.
Well the offer does sound good: a mortgage of up to 95% of the purchase price and the guaranteed protection against decreases of up to 15% of the value of the house is available in certain circumstances. But as you can imagine there are certain terms and conditions.
In fact the product is offered in conjunction with Ulster Bank financed residential development schemes. This effectively means that the mortgage and the price guarantee is limited to developments that are financed by Ulster Bank. Nonetheless the idea is good and if you believe (as I do) that we are very near a market bottom there is little to lose, but the buyer benefits from the peace of mind of the price guarantee.
This sounds great, but how does it work?
When a buyer draws down their mortgage from Ulster Bank, the developer who built the house will place an amount equal to 15% of the purchase price on deposit with Ulster Bank. After five years, Ulster Bank will arrange an independent valuation of the property to see if the value has risen or fallen.
The protection works as follows!
If the market value of the property has indeed decreased by up to 15% in the intervening 5 year period, part of the funds that developer has on deposit with the bank will be refunded to the customer in the form of a reduction in their mortgage. The value up to 15% of the original purchase price. If the property value increases or stays the same, no refund will occur.
All in all this sounds attractive and hopefully the other lenders will follow suit with similar products so that the benefits can be felt by a majority of house buyers.
Ciprian Popescu on Wednesday, February 18, 2009 in Mortgages