Mr. Brendan Burgess:

I thank the Chair. The key point I want to make is that the main beneficiary of restrictions on reckless borrowing and lending will be the borrowers themselves. The people who suffer most when they borrow too much are borrowers. The banks can be insured and bailed out but the borrowers are the major losers. It is a decision of the Central Bank but as a society we need to set a level for prudent borrowing. Whether the LTV is 80% or 90%, we should set it and not exceed it. If we think that 80% is the correct level for prudent lending, we should not then allow reckless borrowing by way of mortgage indemnity insurance. That is very important.

If we think that 80% is too low, and it may well be, we should consider having an appropriate LTV, which might be 90%. We should not use mortgage indemnity insurance to get around prudent borrowing and lending. I do not think mortgage indemnity insurance is a very good idea. There was a very good discussion today, during which other witnesses made presentations. One point that is missed is that the insurance is very expensive and is paid by the borrower. It may be paid directly in the form of money seen in a mortgage statement or paid in some other way through interest rates, but borrowers will end up footing the bill for mortgage insurance. There are not many benefits for the borrower. If the mortgage defaults, the lender may well receive a lump of money from the insurance company, but the borrower is still on the hook for it, which is a very important point.

An example was given today of a house worth €200,000 with a LTV of 90% where the extra 10% was insured for a premium of €2,000. It is important to realise only 10%, or €20,000, of the mortgage is being insured for a premium of €10,000. It is not as if the whole mortgage or the bank's loss will be repaid if the borrower defaults. It is a very limited loss. I was very surprised to hear Genworth Financial say today that it paid out 15,000 claims and a total of €70 million. That sounds like a lot of money and I was surprised by the figure. In fact, it is €7,000 per claim. It will not make a large dent if there is another major problem.

The problem we have is how first time buyers can enter the housing market. They cannot come up with a deposit of 20%. My suggestion is to allow them to access their pension funds for the deposit. At the current time when somebody retires at the age of 65 years, he or she can access 25% of his or her pension fund tax free. I suggest we allow people to access it early, when they need it. That would mean people would be able to save a 20% deposit and there would be lower LTVs, interest rates and overall payments, which would be good for everybody. It would not be good for the insurance companies because they would not get their premiums, but it would be very good for borrowers and the economy.

Whatever changes we make should be introduced gradually. Deputy Pearse Doherty pointed out yesterday that we cannot introduce an 80% LTV on 1 January if mortgage insurance is not in place. If the Central Bank decides to bring in 80% LTV, it should be phased in over a period of time. Any changes should be phased in rather than introduced on 1 January because there will be unintended consequences. I thank the committee.