There is no one solution to the mortgage crisis - Costello

29 April 2015

by Cllr Joe Costello

Speech to Dáil Éireann by Joe Costello TD, on Mortgage Arrears PMB , Tuesday 28th April.

The mortgage arrears crisis inherited by the Government from Fianna Fail is one of the most acute problems caused by the economic crisis. In 2004/2005, there were essentially no mortgage arrears of greater than 90 days. From 2008 onwards, when the economy collapsed, the rate rose steadily. At the end of 2014, there were almost 80,000 mortgages in arrears of more than 90 days, despite a decline of over 26,000 accounts in arrears over the course of 2014. However, progress is being made, with the number of mortgages for principal dwelling houses in arrears falling for four consecutive quarters.

There is no one solution to the mortgage crisis. Therefore, the Government has implemented a number of measures to deal with the problem, such as the provision of the Mortgage Advisory Service, reform of the insolvency and bankruptcy regime and the strengthening of the Code of Conduct on Mortgage Arrears. The Code of Conduct is mandatory, and its implementation is monitored by the Central Bank through onsite inspection of mortgage lenders. I particularly welcome the fact that the Central Bank now sets Mortgage Arrears Resolution Targets which the banks must meet on a quarterly basis. In particular, the 4th quarter of 2014 targets required the banks to prepare sustainable solutions to 85 percent of customers over 90 days in arrears and to conclude agreement with 45 percent of customers by the end of 2014. The Central Bank has recently reported that these targets were met.

However, I am concerned that the lending institutions are now more readily heading down the route of repossession due to the upturn in the housing market. Increases in house prices are making it more attractive for banks to repossess homes. The lending institutions have received unprecedented support from the Irish people in recent years, and we must ensure that they reach agreements with mortgage holders in difficulty whenever possible. Repossession of family homes should be avoided if at all possible and should only be used as an absolute last resort in extreme cases.

The Government is committed to keeping as many families in their home as possible. The measures introduced by the Government have assisted borrowers and lenders to reach agreement to restructure approximately 115,000 principal private dwelling mortgage accounts by the end of 2014.

Notwithstanding the progress that has been made, I believe that further action can be taken to help those in mortgage distress. Over 110,000 principal private dwellings were in arrears of over one day at the end of 2014, 80,000 of these were over 90 days and 30,000 were over 2 years.

I would ask the Minister to look again at legislation that allows the banks to have the final say on any debt deal. The bank veto no longer serves any useful purpose and should be removed, I believe. Furthermore, I would encourage the Minister to support Deputy Penrose’s legislation to reduce the bankruptcy period from three to one year. These two measures would help a significant number of mortgage holders in long-term arrears to get back on their feet, particularly the 30,000 home owners in arrears of over two years.

A third measure is necessary to relieve the high interest burden on variable rate mortgages. This stands at over 4 percent, whereas borrowing costs are around 1 percent. AIB in particular, the bank 99 percent owned by the State, should reduce the interest rate by a minimum of 0.5 percent immediately. I welcome the statement by the Minister for Finance today that he will initiate discussions with the main lenders in Irish banking with a view to seeking reductions in interest rates in the near future.

Finally, I want to raise the problems first-time buyers are now facing in buying a home. While resolving the legacy mortgage issue we inherited from the Fianna Fail Government, we most look to the future generation of potential mortgage holders. It is essential that the property market is properly regulated to ensure that there is no return to the overheated property market that was fanned by the previous Fianna Fail government. However, the new Central Bank rules in relation to deposits are making it incredibly difficult for first time buyers to buy a home and effectively excluding many young couples from the market.

I believe a scheme, administered by the local authorities, should be implemented that would offer first-time buyers grants to help them achieve the deposit limits. A similar scheme was in place for decades prior to 2002, when it was abolished by Fianna Fail. This was before the boom in property prices, and, therefore, it played no role in the property bubble. This measure would help young people save their deposits to buy a home and would reduce pressure on the rental market, which is becoming a rental property bubble.