Banks in Ireland that were planning to start offering negative equity mortgages have been told to hold fire by regulators until a decision has been made with regards to whether these products should be allowed. There are fears amongst officials and regulators that these mortgages will simply push consumers even deeper into debt, sparking a debate as to whether they should be allowed.
Already there are around a quarter of a million homeowners that are currently in negative equity, where they owe more on their mortgage than the property is actually worth. According to figures this could swell to around 350,000 by the end of the year, which means a rising number of homeowners will find themselves tied to their property because of the negative equity.
With the negative equity mortgages that some lenders have been planning to offer homeowners would be able to transfer the negative equity from their existing mortgage onto the new one. However, whilst this could provide convenience for those that want to move to start a family or to take up a new job it could also land many people even deeper into debt.
Regulators are said to have written to twenty one banks so far telling them to hold fire on launching these mortgages until they have decided whether it is wise to allow the mortgages to be made available.
The regulator stated: “We intend to examine the merits of such products further with a view to consumer protection to see whether such products should be available to consumers and if so what restrictions should apply. Such a product may lead to consumers being overexposed or facing future repayment difficulties.”