A new mortgage offer that bends the rules for civil servants has caused a stir – because it gives them an unfair advantage over private sector workers in the housing market.
ICS Mortgages offers to lend government employees more than the rules of the Central Bank allow based on their future income.
The bi-level mortgage offer has been criticized by politicians and housing advocates for allowing state workers to borrow more than someone with the same salary in the private sector.
This apparent display of favoritism means public sector workers could outbid private sector workers in the tight housing market.
Housing campaigner David Hall, of the Irish Mortgage Holders Organisation, denounced the special treatment afforded by officials applying for mortgages to the ICS Building Society.
It was rescued in 2008 as a result of the economic and banking crash and the brand, network of brokers and a well-performing mortgage book valued at an estimated €223 million was sold by Bank of Ireland in 2014 to finance company Dilosk DAC.
Now, ICS has sparked anger by boasting that it offers a specialized public sector mortgage that takes career earnings into account by rating income two points higher than the applicant’s current salary range.
That is the question about these mortgages. Last week on Wednesday 12 May, ICS organized ‘a free webinar’ about mortgages in the public sector ‘to answer all the questions that first-time buyers and movers and switchers have in the public service’.
The ICS claimed it is “a leading provider of mortgages for owner-occupied and owner-occupied homes, with a specific focus on public sector employees.”
Strict Central Bank rules, put in place to prevent a repeat of the housing bubble that caused the economy to collapse, state that mortgages are rated by current – not future – income.
Technically, the decision to grant mortgages to civil servants based on future earnings, despite the assurance of promotion in the civil service, is not governed by Central Bank rules.
An ICS spokesperson said: “The public sector mortgage was approved by the Central Bank in late 2019 and launched in early 2020. The product, as advertised, has been approved.”
It also noted, “ICS, like any other lender on the market, must have approval from the Central Bank before it can bring a product to market.”
ICS added: “The product, with the benefits and incentives for public sector workers in this case, would have been known to the Central Bank and approved it at the end of 2019 and then it was launched on the market in early 2020. ‘
The Central Bank declined to comment on questions about whether it had approved the scheme.
In terms of the ability to buy a house, the ‘two scales up’ significantly increases the purchasing power of Irish officials. It means that if someone making $30,000 a year bids against a government official with the same income, the official could borrow more based on their future income and win the race to buy the property.
Civil servants do not receive a fixed rate. Instead, wages rise across a range of scales, and the difference between the top and bottom scales is significant when it comes to higher earners.
A senior manager starts at €44,447 per year, rising to €59,727.
In the higher salary scales, assistant secretary salaries range from €135,299 to €154,775.
One mortgage adviser noted that “the ability to rank higher gives officials a significant boost in firepower in a rapidly rising housing market.”
David Hall said, ‘This [is] what happened to the guards and nurses in the past. They were given mortgages based on the future level of public service.’
The mortgage attorney warned, “I think it’s against the intent of the Central Bank rules, if not directly against them.”
Mr Hall added that it would increase the sense of unfairness that so many first-time buyers feel about the market. “It’s an elitist process, it’s a free insurance policy for the bank based on the age-old adage ‘you can’t fire a public servant’ and it’s now creating a new elitist and two-tier mortgage market,” he explained.
Social Democrat co-leader Róisín Shortall said: “The existence of a mortgage, aimed solely at public sector workers, indicates that they have some advantage in the highly competitive housing market due to the secure nature of their work.”
She added: “However, buying a home remains an almost impossible dream for both the average public and private sector worker because of our excessive housing costs, which have risen as the government allows cuckoo funds to come in and take away the supply.”