Brian Hayes (Dublin South West, Fine Gael)

I thank the Deputy for raising this important issue and for her reflective remarks concerning the proposal the chief executive officer of NAMA has made to the Minister for Finance. My understanding from the Minister is that the chief executive of NAMA has sought his agreement to the introduction of a deferred consideration mortgage initiative by the agency in respect of its domestic residential property portfolio.

The proposal is one of a range of initiatives that NAMA is examining with a view to maximizing the return on its asset portfolio. Prior to its submission to the Minister, I am informed that the initiative had been approved by the NAMA board. The details of the initiative are currently being reviewed within the Department and the Minister will respond to NAMA when that review has been completed.

The broad concept is that NAMA will offer a limited price protection - 20% of the purchase price for five years - to buyers of its housing stock. The limited protection will be 20% of the purchase price for five years. It proposes that it will be apply to 750 units with an estimated value of about €150 million. This means that a buyer would pay 80% of the purchase price up-front, funded by a 10% deposit and a first mortgage tranche of 70%. A second tranche of 20% would be payable in five years to the extent that the property value had not fallen at that stage.

NAMA will not be providing the finance directly. Rather it will work with existing mortgage providers. In this context the CEO of NAMA recently said the agency has had detailed discussions with AIB, Bank of Ireland and Permanent TSB. He also stated the agency had asked the other banks, through the Irish Banking Federation, if they wished to participate. Any mortgage provider participating in the initiative would issue the mortgage with its own underwriting criteria. The mortgage provider must commit to the second tranche at the outset, subject only to the final property value.

While some commentators and analysts have suggested that the initiative could artificially support house prices, NAMA has engaged consultants to complete an economic study of the potential impact of the initiative. It concludes that the most probable impact will be to accelerate movement towards a natural price floor. The agency also suggests that an alternative strategy of non-intervention could lead to a prolonged period of stagnation, with potential buyers continuing to defer purchases. In support of this, the NAMA CEO recently pointed out that in the first half of 2011, only €1.2 billion in mortgages were drawn down, which suggests that draw-downs for the year as a whole could be around half of the €4.5 billion figure which was Goodbody Stockbrokers' prediction at the start of the year.

It is in all our interests that every effort be made to get the market moving again, with prices set at realistic levels. For example, NAMA's experience with one developer whom it instructed, on foot of an agreement reached with him, to reduce the price of houses in a development built three years ago, was that over the course of two weekends some 20 of the houses in question were sold. This confirms that the market is quite price sensitive.

Overall, NAMA is focused on managing its assets to achieve the best possible return for taxpayers without engaging in the dumping or speculative hoarding of property assets. In this regard, NAMA believes the deferred consideration initiative will protect portfolio value and optimise taxpayer benefit better than a non-intervention strategy.

There are risks associated with the initiative, as the Deputy rightly pointed out in her contribution. In discussions with the Department of Finance, NAMA has sought to address these risks. NAMA also has assured the Minister that it will limit the initiative so that its scale will not create significant market distortion or artificial price support. However, the initiative is still being considered and the Minister will reply to NAMA when those considerations are complete.

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