Peter Mathews (Dublin South, Independent) | Oireachtas source

I welcome the witnesses and think I know all of them from our experiences of examining the wreckage of the economic crash. Having been in the lending business since 1979, I have seen a couple of cycles and recoveries and this experience helped me to determine the scale of losses for the Irish domestic banking scene. The Governor spoke of credit in the economy and so on but, in big picture terms, between 2001 and 2008, we grew from having a domestic banking sector three times the size of the national income to one five and a half times the size of the national income. This was madness as the incomes generated from the production of goods and services must be the servicing capability for national debt and household debt.

Up to 1985 household debt and the financing of housing were funded on a mutual basis in society. Long-term savings were used as funding for housing through the intermediaries that were building societies - later this applied to banks too. The arrival of new forms of financial engineering meant this was all lost as banks went mad increasing the reckless funding of their balance sheets - this was the engine of growth that delivered reckless lending. Financial commentators in Ireland have not made the connection that this lending could not have happened without crazy funding. The funding was the creation and responsibility of the boards of directors of financial institutions. These boards of directors have tiptoed off the stage and have not been asked to explain why they allowed the floor of the funding of the nation's fixed assets to become perilous.

We have heard that residential property values in Dublin have gone up by 23% in the past year but this is another big lie. It is a lie because the prices of transactions may be calibrated to have risen by 23% but the level of transactions as a volume is only one third of the normalised levels of transactions for a city of 1.25 million people.

As Mr. Deeter indicated, these are being funded to a great extent by cash, which has come from legacies, family transfers and savings that have no other place. Deposits are only paying less than 1% so people who have liquidity are bidding up the prices in the lower volume of transactions. It would be truthful for commentators and analysts to say that values in Dublin may have risen by approximately a quarter of 23%, or perhaps 5%. We should cross-check the figure.

When somebody or a couple enters a mortgage for 35 years when they are in their 20s, what is the alternative for the accommodation of their lifetime? What about a 35-year lease? Would that person or couple enter a 35 year lease for similar monthly commitments over the profile of the mortgage loan? It is a direct comparison. We hear about loan to value but what are people talking about in God's name? Is it the price of a couple of transactions that may have occurred on a road or neighbourhood? That would also be crazy. The rental value of a house - the subject of the transaction - is more important. What is the normalised, maintainable rental value? Whether a person is repaying a mortgage or a 35 year lease, it is a similar prospect for the accommodation of a house.

We heard a number floated of €400,000 for a semi-detached house in a Dublin suburb. If that three-bedroom house rents for €1,500 per month, at a 7% yield or 15-times multiple, the €1,500 would be €18,000 per year and €270,000 gross, before making any depreciation provision for the refurbishment and repair of the house over the 15 years. That is the economic value of the house. Alternatively, one can consider that if there is a mortgage of 35 years, what are the likely averages - in lumps of ten years - of interest rates over the 35 years. I remember paying 15% on my mortgage in 1981 and 1982. That was a variable interest loan. People get stuck on what is happening now but that is very unreal. There are trillions of euro sloshing around in financial markets, with negative real interest rates.

We must be very careful in joining the cogs in the market. We know there is an undersupply of housing, as 100,000 families are searching for a home. We also know that from the splurge of the reckless funding which led to reckless lending, there are another 100,000 households in deep mortgage distress. There is no worry about the banks getting into a gallop of credit expansion again, as they are trying to pull back and correct the funding models they have. They are doing that by putting a strain on the assets, or the loans they gave out in the past. They are doing horrible and unconscionable things to families. They now have people imprisoned for 20 years. The split mortgages are utter nonsense.