Two of the state’s banks have been cleared to offer new mortgages to homeowners stuck in negative equity.
A report in today’s Irish Independent claims that lenders Permanent TSB and Bank of Ireland have obtained permission from the Central Bank to offer the new type of home loan.
The new loans will see negative-equity debt being added onto a mortgage for a new property, freeing homeowners up to move house.
The move is expected to be a significant boost to the property market with thousands of people currently trapped in homes that are worth less than they amount they originally borrowed to pay for them.
Several young people have complained in recent years that their negative equity problem has prevented them from upgrading to a bigger house in which to grow a family. Others have been prevented moving closer to their jobs.
An estimated 60% of mortgages in Ireland are said to be in negative equity.
Despite the news, it is understood that strict limits will be imposed on the amount of negative equity that can be carried over to a new property, with the Central Bank conscious of not allowing those in debt to slip deeper into it.
Other banks are said to be monitoring the new mortgages to see how the new scheme works out.
A spokeswoman for Bank of Ireland said: “Bank of Ireland confirms that in response to their mortgage customer requirements, it is supporting certain customers who wish to trade up their private residence and have residual negative equity on their existing mortgage after selling their existing home.”
The spokeswoman explained that Bank of Ireland would only approve mortgages where homeowners ended up owing 25% more than their new property was worth.
This would mean someone buying a new home for €200,000 would take €50,000 of negative equity on to the new mortgage.
A spokesman for the Central Bank said the ability to meet repayments on the new mortgage would be the key criteria.