Mr. Lorcan O'Connor:

We are aware that the split mortgages are a commonplace solution that many practitioners are identifying as being sustainable. While we were setting ourselves up, we tried to put in place a number of case studies, in consultation with both creditors and other representative groups, to try to convey the kind of solutions that might be viable for somebody in difficulties. One of the solutions we had most difficulty with was the issue of split mortgages. Two years ago, for example, the concept of a split mortgage was far less refined than it is now. Back then if a person owed €100,000 and could service €50,000, the mortgage would reduce to €50,000 and the balance or a large part of it would be warehoused. That would have been it and there would have been no clarification on what would happen in regard to the warehoused €50,000 in the future.

What we said was that this would not be in compliance with our legislation, because for somebody availing of a personal insolvency arrangement, PIA, - the one involving mortgages - the practitioner must certify the person is solvent again. If this €50,000 is warehoused, with no clarification as to what happens in the future, how can that certification be made?

It took us some time to work with creditors, the Central Bank and others to identify what could be done to reconcile those issues.

We now have a case study on what happens when, to take the example given earlier, an individual who could service €50,000 of a mortgage worth €100,000 has the remainder warehoused. What happens to the warehoused amount is clear. The solution we have identified involves an incentive to pay it down at an early opportunity. While the individual's current circumstances may not extend to making payments on the warehoused amount, he or she may get a better job in future and would get a discount by paying it down early. This is an incentive for the debtor to stay with the process. There will also be clarity on what happens to the warehoused amount when the individual reaches retirement age or a certain point in the future. If, for example, the property is large because it needs to accommodate a large family, by the time the individual reaches retirement the children are likely to have moved out and there might be provision to trade down. The individual would retain what he or she needs to purchase an appropriate dwelling. In the event that the individual cannot pay off the warehoused amount on retirement, he or she will get a lifelong interest in the property and, in effect, the charge will sit on the property until he or she dies, at which point the family will have first refusal on purchasing it. Ultimately, the bank gets out but there is clarity for the debtor, who can sign up to the proposal in the knowledge that he or she will be solvent and can retain the roof over his or her head for as long as necessary.