Thursday October 20
th 2011.
Like every Deputy in this house I am acutely aware of the enormous pressures that face our people. My constituency of Dublin South West is no different to other constituencies in the profile and mix of housing type. Those who currently face the twin problems of negative equity and distressed mortgages demand that their Government and this Dáil respond with effective solutions to the nightmare they face. Our response to this problem will define how an entire generation views politics.
The Keane Report is a good starting point, but it is only that. What is now needed, as Minister Noonan has acknowledged, is a clear plan across Government to implement those ideas that can work and provide relief for those in this appalling situation. That’s what we are going to get. An implementation strategy which starts to deliver real solutions.
We are not bound by this Report. Indeed, I very much disagree with the Report's conclusions around providing support through the tax code for those who bought at the peak of the boom. I believe that helping people through enhanced mortgage interest tax relief, particularly those caught in negative equity and who are meeting their repayments in full, is both a prudent and sensible use of the taxation code. This issue is under active consideration and is of course a matter for the Minister and Government in their deliberations around the framing of this year’s budget. At this stage we should rule nothing in or out.
Let us be absolutely clear about what has happened. The banks cannot slither away from their responsibility for creating this mess. The banks were on steroids during the boom in property prices. They were the ones who pumped money into the market; they were the ones who introduced 100% and higher mortgages; they were the ones who introduced 35- and 40-year mortgages.
They cannot now behave like Pontius Pilate, wash their hands and walk away from the situation. The covered institutions have a particular responsibility in this regard. They have been provided with the public capital to allow debt write down for people who have unsustainable mortgages. Their failure to date in providing for this represents more of the same denial that was such a feature of the years leading up to the crash. The public has done the heavy lifting on behalf of banks. It is now time for banks to step up to the plate. They need to get on with the job.
This debate is crucial, both here in the chamber and at the various committees that have been working on this problem. Government does not have all the answers. I appeal to all members to work with us in coming to agreement where that is possible and setting out a common approach to this problem. But I have to stress that solutions have to be realistic and applicable.
Like many others in this debate, I am particularly concerned about that group of young people who bought during the peak periods of the boom and now find themselves in substantial negative equity. Many of these people were seduced into taking out a mortgage by the aggressive marketing and promotion tactics by the banks.
In many cases the banks failed to adequately stress test the borrowers. I think there is now a social and moral imperative on banks to help people who are in difficulty with their mortgages. Mortgage holders are customers. They are not there to be squeezed for the last drop. The family, social and economic consequences of not taking action are too high.
The Report under consideration today should be taken in conjunction with the strong remarks made by the Governor of the Central Bank and particularly the very extensive speech given by the Deputy Governor, Matthew Elderfield, in Cork last Friday. The Governor of the Central Bank has made it clear to the covered institutions that they have been provided with sufficient capital to deal with future losses on their mortgage books.
The Central Bank and the Government are at one. It’s high time that the banks got on with the job in hand. Where mortgages are manifestly unsustainable it is time that they were written down.
In his speech in Cork, Mr. Elderfield set out in very clear terms the very vigorous approach the Central Bank will now be taking in forcing the lending institutions to act more decisively and more fairly. He was particularly severe in his criticism of the sharp practice of banks, which are raising interest charges on standard variable mortgages in an attempt to compensate for their losses on tracker mortgages.
There is no one solution which will work in all cases. The residential mortgage sector is multi-layered and complex. The stresses in the mortgage sector are a consequence of falling prices, falling incomes, rising unemployment and exceptionally low levels of activity in the housing market.
According to the latest Central Bank report the total number of mortgages is in the order of 777,000 thousand. The total value of these mortgages is just over €115 billion euros. We are talking about a very large number of mortgages and a very large amount of capital. Within that number there is a very wide variety of mortgages in type, size and duration.
Analysts have estimated, for instance, that 25% of the residential mortgage market is buy-to-let mortgages. Third parties guarantee many mortgages. This has been particularly the case in mortgages taken out by younger people at the height of the property boom when parents acted as guarantors for their children.
The Government’s position is very clear. We have three priorities:
· We want to keep people in their homes where that is the clear wish of the mortgage holder.
· We want to reduce the burden on homeowners facing mortgage-servicing difficulties.
· We want to redress the power balance between the lending agencies and the mortgage holders.
Steps have been taken to date but much more needs to be done. I have been critical of the implementation strategy by the banks when it comes to the modest proposals of the Cooney Group, which reported late last year. It is simply unacceptable that it has taken the banks over eight months to implement a sensible idea that up to one third of mortgage interest could be set aside for two years for people who find themselves in this situation.
The Central Bank has published, and is strongly enforcing, a Code of Conduct on Mortgage Arrears. The Central Bank has recently updated that Code and has published a very useful guide for mortgage holders who are in difficulty or may be about to go into difficulty. Much more needs to be done in explaining the rights that people have in this position.
Earlier this year a Mortgage Arrears Resolution Process was put in place, which outlines the procedures that should be followed by lenders and borrowers. To date more than 69,000 mortgages have been restructured. It is disturbing to note, however, that 30,000 of these restructured mortgages have gone into arrears. Quite clearly the banks are not being realistic in their restructuring proposals. A restructuring proposal should have the capacity to last for a reasonable period of time. In any restructuring plan the ability to pay and having a reasonable disposable income are essential ingredients.
The Keane Report outlines a series of measures which will help some mortgage holders that are in difficulty. These include: a mortgage-to-rent scheme, a mortgage leasing scheme, a split mortgage scheme and a trade down scheme. The Government is moving rapidly to implement some of these suggestions on a pilot basis. Other measures such as debt-for-equity and shared ownership options may benefit some people, and these will also be considered.
The Report also proposes a new Independent Mortgage Advisory Agency, which will act as an advocate on behalf of mortgage holders during discussions and negotiations with lenders. I think such an agency will help redress the power imbalance which currently exists between lender and borrower.
Early in the New Year the Government will also be bringing forward major reform proposals in the area of personal bankruptcy. This legislation will be of benefit to those who have unsustainable debts, including unsustainable mortgage debt. In drafting this legislation careful consideration will need to be given to the danger of providing perverse incentives to either borrowers or lenders. In the meantime the prospect of such legislation may be an incentive to lenders to move with more urgency in resolving mortgage arrears.
The inter-departmental group rightly points out that there are three factors influencing mortgage arrears. These are: affordability, negative equity and future prospects. Affordability is obviously the key metric in any discussion of mortgage arrears. Changes in people’s ability to pay their monthly mortgage obligations will be strongly influenced by changes in employment status, salary changes and tax changes. There are people in difficulties now whose future prospects will change for the better.
As the Keane Report says determining how incomes, interest costs and house values will change in the future is by no means an exact science. As the economy stabilises and growth returns once again job prospects and salary levels will get better. Improved mortgage affordability will be a consequence of a
stronger economy.
The other factor which is key to changing the outlook is a fully- functioning residential property market. In 2010 the number the number of new mortgages was equivalent to the same number given out in 1971.
This is a clear sign that the market is now dysfunctional.
Nobody wants a return to a boom and bust cycle in residential property. But it is in the clear interest of mortgage holders and the wider economy that we have a property market functioning at sensible levels of activity. Confidence of course is critical. I believe confidence will return when a clear resolution is found to the sovereign debt crisis and the associated banking crisis in Europe. Confidence will also be boosted when people see that the Government is showing the capacity and the determination to deal with a very difficult economic situation.
I think the Government will also have to look carefully at lenders' capacity or willingness to provide new mortgage finance. Without adequate levels of mortgage finance the residential property market will remain severely constrained.
The Keane Report, which we are discussing here today, is not the last word on residential mortgages. As I said, the Government is open to new ideas from other parties and other deputies and welcomes suggestions from interested groups outside this house. In discussions surrounding the budget we will be examining what further measures might be taken.
I want to repeat what I said at the beginning: The Government is fully aware of the scale and the depth of problem with residential mortgages.
Comprehensive data on arrears is now being provided on a quarterly basis. We will work through the issues in a sensible, determined and fair way.