IFG to protect home buyers against negative equity

IFG to protect home buyers against negative equity

 

IFG to protect home buyers against negative equityIssued Thursday, 8 September, 2011: Financial services group IFG today launched a new product designed to protect home buyers from further falls in property prices. At no extra cost to the consumer, the IFG Home Price Protection Plan will help remove some of the uncertainty around decisions to buy a new or second hand home by protecting buyers against financial loss if, within a designated period, the property is deemed to be of less value than they paid for it.

The IFG Home Price Protection Plan reduces the risk when buying a property and is available on all residential property transactions provided the seller registers for the Plan. The buyer can request the seller to register a specific property for the plan which is then integrated into the conveyance contract between buyer and seller. Requesting a Home Price Protection plan does not mean a buyer thinks the value of the property will reduce, it simply means the financial loss resulting from a fall in property values is a risk they no longer need to take on.

The IFG Home Price Protection Plan can be applied to houses or apartments; new or second hand properties; a specific percentage of the purchase price; and for a specific length of time.

Speaking at the launch of the new product the Chairman of IFG Ireland, Frank Ryan, said : “All of our research tells us that a major contributing factor preventing potential purchasers holding off buying a home is the fear of falling property values. There is a clear need for the consumer to be protected against the potential for negative equity when buying a home.”

How does the IFG Home Price Protection Plan work?
When a home buyer wishes to have the protection of a HPP plan he or she requests the vendor to register the property under the Home Price Protection Plan with IFG Trust Company Limited, the company designated within IFG group to act as Trustees for Home Price Protection.

The HPP Plan requires the seller to defer receipt of a portion of the purchase price until an agreed time period (1 to 4 years) has passed. The buyer’s solicitor will place the amount protected into a special independently administered Trust Account. After the agreed time period has passed the Trustee will independently determine if the seller qualifies to receive the outstanding payment or if it should be reimbursed to the buyer. The Trustee will determine the distribution based on the movement in property values as determined by an approved independent property price index.

IFG Trust Company Limited independently administers the Plan and all receipts and payments will be the responsibility of the Independent Trustee. The buyer’s solicitor lodges the agreed amount into the designated Trust Account at the same time as paying the reduced balance of the purchase funds to the Vendor. The buyer has then fulfilled all their obligations to the vendor and the conveyance of the property will complete as normal;

Example; [If a HPP Plan is for 10% of purchase Price]

  • Sale Price of Property: €200,000
  • Total payment to seller on/by closing of contract: €180,000
  • Payment into Trust Account: €20,000

What is the level of protection?
The HPP Plan is designed to protect the home buyer against any loss suffered by a subsequent fall in property values. The buyer and seller agree the protection level most suitable to their specific situation up to a maximum of 20%. The two parties also agree the time period over which the value protection applies, either 1, 2, 3 or 4 years.

How is it determined that the value has decreased or increased?
The measurement of any movement in the property value will be determined solely by reference to the approved “property value index”, in this case the Central Statistics Office monthly index. If the CSO property price index has reduced by 10% between the start and end date of the HPP Plan then the home buyer will be reimbursed 10% of the original amount paid for the property at the end of the period.

 

Ends
For further information contact:
Gerry O’Sullivan
Q4 Public Relations
Tel: 01 4751444 / 087 2597644

Nuala Buttner
Q4 Public Relations
Tel: 01 4751444 / 085 1744275

Notes to Editor:
How to access a Home Price Protection Plan?
You can initiate a HPP Plan for the property you intend selling or purchasing by contacting IFG:
E/Mail: Info@HomePriceProtection.ie
Post:Home Price Protection Plan, IFG House, Booterstown, County Dublin
Telephone: 01-275-2694 01-275-2800
Web:HomePriceProtection@IFG.ie

CSO Property Price Index
The Central statistics Office publish a property value index every month. The CSO took over this responsibility from the Department of the Environment [DoE] in 2011. The DoE had produced a property index for over twenty years by gathering monthly data on all property transactions in Ireland where a mortgage was taken out. The CSO now analyse this data and publish the appropriate index. A key advancement in the index is that it is calculated on a hedonic regression model rather than simple averages and thus removes any disparity which would be caused from variances in different house sizes or location from urban centres being sold in different periods.

From the highest point in the boom to June 2011 the CSO index indicates a downward movement. In Dublin, Property prices have dropped by 49%. The figure for Rest of Country is 40%. Apartments in the Dublin area are down 54% over the period. National year on year property values are down 13% with the June 2011 decrease greater than May 2011 decrease.

Distribution of the Trust
The necessary funds to cover any distribution due to the Purchaser or Vendor are held in a special Trust account and each is protected by the appointed independent Trustee. The rules of the Trust dictate that the funds can only be held in a capital guaranteed account. A Trust account is an autonomous financial implement independent of all parties. The Trustee will fulfil all payment obligations based on the rules of the Trust Deed. Therefore, the beneficiaries are assured that the distribution will be made on an impartial basis.

There will be no direct charge to vendor or purchaser as the costs of the service will be deducted from the interest income accrued in the Trust account. The amount deducted for all costs will be capped at 90Bps of the property sale value [On a €200,000 property value the maximum amount deductible from the Trust would be €1,800] All remaining interest accrued is paid out as explained previously.

Leave a Reply