DILOSK, a new specialist buy-to-let lender, is to introduce American-style non-recourse lending to Ireland for the first time.
The move means Dilosk, which expects to be lending before the end of the year, could not pursue borrowers for the shortfall if buy-to-let properties are sold for less than the amount owed on their mortgages.
The initial focus will be on lending to new investors but Dilosk also plans to refinance existing buy-to-let mortgages. “We’re looking at recourse and non-recourse lending but have not yet finalised our product suite,” said chief executive Fergal McGrath, who founded Dilosk with his brother Oran.
Interest rates would be “competitive” compared with traditional recourse mortgages but Dilosk would not lend more than 75% of a property’s value to investors borrowing on a non-recourse basis. “We would have stronger covenants in non-recourse contracts than you find in traditional mortgages,” said McGrath.
He criticised lending practices at the mainstream banks, 27.5% of whose buy-to-let mortgages are in arrears, for focusing on borrowers’ incomes rather than rents generated. “We will apply a more commercial underwriting approach to what has been treated as a residential mortgage product up to now,” he said.
Advertisement
“Banks relied too much on borrowers’ incomes when underwriting mortgages in the past, which we believe was a mistake. Another mistake was to combine investors’ homes with their buy-to-let properties when underwriting mortgages.”
Dilosk completed the acquisition of a €223m mortgage book from Bank of Ireland last week, along with the bank’s ICS mortgage brand, distribution platform and agency agreements with about 120 mortgage brokers. Dilosk was authorised by the Central Bank as a retail credit firm last month, making it the first new entrant to the mortgage market since the financial crash.
Dilosk plans to raise up to €200m early in 2015 in what will be seen as a test of overseas confidence in the recovery of the property market here. “We’ll be going to the markets in a public issue of notes,” McGrath said. “The appetite for risk attached to Ireland is increasing abroad. There’s no talk of a bubble.”