NAMA's Deferred Consideration Scheme

NAMA's Deferred Consideration Scheme

The National Asset Management Agency (“NAMA”) has recently introduced a new pilot scheme in an attempt to stimulate the housing market, and protect purchasers from declining property prices.

This scheme is available only to those purchasing properties as owner-occupiers, and therefore is not available to investors. In the first phase, approximately 115 properties in 12 developments in Dublin, Meath and Cork (the “Properties”) will benefit from the scheme. Bank of Ireland, AIB through EBS and Permanent TSB will offer purchasers 90% finance. On completion, the purchaser drawns down 70% of the agreed total consideration (the “Initial Payment”) and a further 10% is provided from the purchaser’s own resources. The payment of the remaining 20% of the agreed total consideration (the “Deferred Sum”) is deferred for 5 years, and, if required, will constitute a further drawdown of the purchaser’s facility.

If the market value of the Property decreases up to a maximum of 20% by the fifth anniversary of the purchase of the Property, the purchaser will not be required to pay over the Deferred Sum. Where the market value of the Property decreases by a proportion of 20%, only a portion thereof is payable.

If, at the end of the 5 year period, the value of the property is equal to or greater than the agreed total consideration, the full amount of the Deferred Sum is payable by the purchaser and is drawn down from the purchaser’s lending institution.

In certain circumstances,  such as the bankruptcy or death of the purchaser, or indeed the redemption of the loan,  an early valuation of the property will be triggered (the “Early Valuation”).

In order to value the Properties, NAMA will establish a pool of independant professional valuers who carry on business in Ireland to carry out a final valuation of the property on the fifth anniversary of the purchase, or, where applicable, at the Early Valuation date.

There is a potential for purchasers to achieve considerable savings on their total mortgage liability where the deferred payment is not drawn down or is only partially drawn down at the expiration of the five year period, or earlier if applicable. The purchaser makes monthly repayments based on the full amount of the mortgage (i.e. the 90% of the total agreed consideration); however interest is payable only on the Initial Payment. If the Deferred Sum is not required, the lending institution review, and adjust downwards in it's descretion, the monthly repayment.

While this scheme benefits only a small portion purchasers, NAMA has indictated that the list of participating lenders and the list of participating properties may be extended in the future.

For any further information on this case please contact Michael Walsh, Partner, Property Division.