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Probe into offers of interest-free property loans
Sunday, October 05, 2008 By Ian Kehoe, Chief News Correspondent
The government has ordered an investigation into plans by a number of leading developers to offer interest-free loans to encourage buyers to enter the property market, The Sunday Business Post has learned.

Minister for Finance Brian Lenihan has formally asked the Financial Regulator to examine the proposals, and to report back to the Department of Finance on the regulatory and legal implications of the schemes.

The move comes in response to concerns that the proposed loans may be in breach of consumer lending legislation. Mary O’Dea, the consumer director of the Financial Regulator, will carry out the probe.

The state is also liaising with the Revenue Commissioners to see if there is any taxation implication in relation to the schemes.

The move came after two of Ireland’s biggest property developers unveiled plans to offer interest-free loans to encourage property purchasers who cannot raise large deposits.

Companies controlled by developers Bernard McNamara and Ray Grehan plan to assist buyers who cannot afford to raise large deposits by offering them interest-free loans. The deals are being offered as the global banking credit crunch has forced lenders to demand up to 20 per cent of the price of homes in cash. The finance minister requested the review in the past two weeks.

Lenihan said there are ‘‘many variations to these types of schemes and in the absence of precise detail on their terms and conditions, it is not possible to make an assessment of possible regulatory and, indeed, taxation implications’’.

The Financial Regulator has previously announced that it was assessing whether the schemes needed formal approval by the regulator. Both Grehan and McNamara have said they have received legal advice that they are in compliance with existing law.

Based on the advice of this new probe, the government will consider any necessary changes to the law, according to senior government sources.

McNamara’s firm Radora is offering a loan of up to 30 per cent of the selling price to attract buyers for 70 of the 330 apartments at its Elm Park development in Dublin. The loan would not have to be repaid for five years.

Glenkerrin Homes, Grehan’s firm, is offering a deferred payment of 15 per cent on its developments through an interest-free loan to be repaid after seven years.

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