Mr. Brendan Burgess:

I would like to talk about the fundamental principle of what is a sustainable mortgage. The conventional wisdom is that it is a mortgage which is paid off in full by the time a person reaches retirement and enables the house to be mortgage-free for the children when the person dies 20 or 30 years later. That conventional wisdom is incorporated in the Central Bank's definition of what constitutes a sustainable solution. However, this view is leading to very many perfectly sustainable mortgages being classified as unsustainable. The borrowers affected are receiving letters to tell them that there should be an assisted voluntary sale of their home. That is wrong. It is also leading in some cases but not as many to people with sustainable mortgages having split mortgages and other solutions at the expense of the taxpayer and which they should not be given. If we do not have an understanding of the definition of a sustainable mortgage and if there is no proper definition, much of our analysis and policy decisions will be faulty. I will argue that a mortgage does not have to be paid off by the time a person reaches retirement. If a borrower can pay the interest on the mortgage at the standard variable rate, that mortgage is sustainable and it is sustainable whether the person is aged 25, 45 or 75 years. People ask what will happen when a borrower retires while still owing a mortgage. If the person can still pay interest at the standard variable rate on that mortgage, it is a sustainable mortgage and the mortgage will be repaid. For some reason, a mortgage is the only expenditure that is regarded by conventional wisdom as an expenditure that it is necessary to repay in advance of retirement. For example, we do not have to pay our health insurance or meet any other expense in full by the time we retire. I met a woman who is in her mid-50s and has ten years before retirement. She can pay the interest on a mortgage of €150,000, while the house is worth €250,000, but the bank has told her that her mortgage is unsustainable and that she has to sell her home. She can easily afford to pay the interest and has done so for the past three or four years, but that is all she is able to do. It does not suit her to do otherwise because she has children in school and college.

The definition is completely wrong. This arises from the Central Bank's insistence on having sustainable solutions for a certain percentage of customers. This sustainable solution is not designed to help borrowers; it is designed as a prudential measure for the banks. This is a very important point. That is the reason repossession is a sustainable solution. It is a sustainable solution for the banks, not for borrowers. This is a point the committee needs to bear in mind when asking the banks about their targets. What are their targets for treating customers properly? That is the most important aspect. The interest-only option is a fine solution for some borrowers, but we tend to dismiss interest-only payments as kicking the can down the road. The Central Bank categorises it as a temporary solution, but it is nothing of the sort. Interest-only payments offer a sustainable solution. This should be remembered.

When the committee makes policy decisions and prepares questions for the banks and the Central Bank, I suggest it asks them to state their attitude and ask why they repossess houses from borrowers in positive equity who are able to pay the interest in full. The same definition also applies in cases of negative equity. In cases of deep negative equity where a borrower has a mortgage of €300,000 on a house worth €100,000, if the borrower is unable to pay the interest on the loan but is able to pay the interest on the current value of the property, a sustainable solution involving a debt write-off or a split mortgage could be developed. However, this is all based on a proper definition and understanding of what is a sustainable solution. It is a little uncomfortable to challenge the conventional wisdom and most people react negatively when I put it to them. However, once they have considered it for a while, which might be a few weeks, it sometimes sinks in that there is some sense to it. I ask the committee to think about this and can discuss with members the implications for those with cheap tracker mortgages, as well as other unsecured debt, with other issues they wish to raise.