The Irish sub-prime residential mortgage sector: international lessons for an emerging market

As the volume of mortgage credit has risen in tandem with house price inflation, the sub-prime home loan sector of the Irish market has begun to expand in order to meet demand from those not serviced by the mainstream financial service providers. This article examines the recent emergence of this form of mortgage credit in Ireland and draws comparisons with the USA, where this form of lending has long been a feature of the market but also where this sub-market has recently encountered very serious difficulties. It concludes that this is a rapidly expanding market and an opportunity for new private sector entrants. However, this paper highlights the favourable terms offered by the public sector and argues that their failure to price according to the risk profile of borrowers exposes the Exchequer to higher—and often unquantified—costs in pursuit of promoting home-ownership. It also concludes that the Irish public sector provision does not wholly comply with the generally accepted features of sub-prime lending with consequent very high rates of default.