Ms Isolde Goggin:

I thank the committee members for giving us the opportunity to appear before them to discuss our mortgages options paper, which was requested of us under A Programme for a Partnership Government. I am joined by Dr. Cormac Keating, who led the paper's development, Ms Áine Carroll, director with responsibility for financial education and consumer information, and Mr. Harry O'Rahilly, a case officer and economist who did much of the work on the report.

The report itself is the outcome of much consultation and research we did. We talked to many different stakeholder groups, including consumer representative groups and industry players, both here and internationally. We talked to those already in the market offering mortgages and those who are not but might potentially be at some stage. We did a public consultation and commissioned research to examine consumers' perceptions and experiences of the market through focus groups. We put together all this information to develop an evidence-based analysis, which then formed the basis of the 14 actions which we believe need to be considered by the Government and policy makers.

Due to time limitations, we cannot go through every one of the actions in detail today. However, they are all contained in our written submission. I will take the committee through some of them now but we are happy to make ourselves available to any committee member who would like a more in-depth briefing.

It will be no surprise to committee members that our analysis showed the market is quite dysfunctional, both from a competition and consumer perspective. That is the legacy of the past 15 years of boom and bust. It took us a long time to get to the stage at which we are today. I am afraid our analysis is that it will take some considerable time to get out of it again. The mortgage market is tightly connected with the economy and with society. We all know the effect both lenders and borrowers can have on the stability of the banking system as a whole. It is also heavily impacted by other policies, including housing strategies, the rental market, public housing policy and policies regarding insolvencies and repossession.

Having done this analysis, we did not find any silver bullet, any more than anybody else who has examined the market over the past ten years. We do not believe there are immediate remedies that will reduce mortgage rates and fix all the other aspects we found to be dysfunctional. However, we believe there are some short-term, medium-term and long-term measures, which if implemented, will enable us to start building a mortgage market which is more competitive, stable and fit for purpose. We see the options we set out not as the end of discussion but as a starting point.

Significant consideration needs to be given by policy makers as to the type of mortgage market Ireland wants in the long run. It will be no surprise we found the market is distorted with a high concentration of a small number of players which have a high market share. There is limited competition between those lenders and a low-level of entry by new players.

The mortgage market is one which will always have to be tightly regulated. It is not in anybody's interest that it should operate as a freely functioning market with credit being inappropriately thrown into it. We believe, however, an appropriate framework of prudential regulation can coexist alongside robust competition. One does not need to be sacrificed for the other; one can have both.

There are issues around the level of competition in the market but those are not the only ones. There is significant Government involvement which can act as a disincentive to new entrants coming in from outside. There are market distortions caused by the large scale of tracker mortgages. There is a mix-up between the market for primary dwelling houses and for the rental or investment market, namely, buy-to-let mortgages. In some cases, primary homes have been used as collateral for property investment. Consumers bought houses as an investment and used the primary home as security. When the crash happened, they were left with declining asset values, falling incomes and large outstanding debt.

Our analysis also indicated there is a lack of a predictable and consistent practice when dealing with mortgage loans which have fallen into arrears. This means that banks had to have more capital in order to write further mortgages. Capital is costly and that feeds into mortgage rates. We believe the prevailing mortgage rates are a reflection of all these market characteristics.

Through consumer research, we tried to find out what consumers wanted from the market. We are trying to propose options towards building a market that is fit for purpose and serves the need of consumers. One issue that came out strongly was a big level of mistrust between consumers and lenders, particularly considering new lenders and international financial institutions. There was a tendency for consumers to go back to the names they knew from a long time with a distrust of new ones. They have seen some institutions come and go in the past and are sceptical about their level of long-term commitment to Ireland.

Consumers also have a real sense of vulnerability, which manifests itself in a number of different ways. People are quite reluctant to switch mortgage providers, even when there is clear evidence they would benefit greatly from doing so. They are reluctant to lock into long-term mortgage rates, which makes Ireland quite different from the continental market where mortgages tend to be much more based on longer terms.

That distrust and reluctance to switch has an effect on the level of competition and how effective measures would be to introduce further competition. From all the issues we have talked to consumers about, such as mortgage regulation, housing policy, arrears and repossessions, when we distilled it down, what consumers want is to be able to get a mortgage, they want certainty about what they are paying for their mortgage and they want a clear and fair process if they find themselves in arrears. They do not necessarily want no process or for the process to drag on forever but they want to be clear on the process and want to have an end date in time.

The options we put forward then are how we believe policy makers, regulators like ourselves, financial institutions all working together can create a mortgage market which meets those needs that consumers have expressed. Some of those address issues we accept are sensitive in nature but we think they need to be considered and we do not put them forward lightly.

First and foremost in order to address this point about loans for investment purposes being mixed up with loans for family homes, we need to have a national vision as to what exactly we as a nation want from our mortgage market. Are those two types of loans the same thing? Do we want the mortgage market to be there to provide ordinary working people on ordinary incomes with the ability to have homes, to pay off the loan over a number of years and end up in possession of their homes or do we want the mortgage market to function also as a sort of investment vehicle? We think those are two quite different types of objectives. At present they are tangled up. It might be that we need to separate those two out and we have put forward some options as regards that.

We have some short-term proposals. We think that increasing competition is extremely important, that more new entrants would increase competition as would building trust among consumers as to their certainty and the degree of regulation that they are assured of in moving to those new entrants. We think there is a job to be done in rebuilding our international reputation. We think there is a perception out there among the international lenders that things are worse than they are, that they are back five or seven years ago when we were in the worst of the crash. We are saying that the Department of Finance and the Department of Enterprise and Innovation could get out there and talk to international lenders and do a road show and assure people that we are working through the problems and that we are an attractive option for new entrants.

We also think a number of actions could be taken by the Central Bank of Ireland and the Department of Finance to encourage new types of lending initiatives, new sorts of lenders coming in. It does not have to be the traditional standard bricks and mortar type banks. There are other types of lenders out there, they may be a niche market at present, but we are seeing this in other countries. We have some examples as to how those kinds of innovative lenders could be, how it is done in other jurisdictions and how we might try it here. There are procedures that we would like to get involved in as regards making switching easier - for instance, moving to a more electronic form of conveyancing because conveyancing is expensive, slow and is very heavily paper based, making the process for switching between banks or lenders easier and quicker for consumers.

In the longer term we have a question as to whether the way the mortgage market is currently funded is the correct way. What we have is long-term loans going out on one side and short-term funding coming in on the other. The mortgages are being funded by deposits. We know there are other models and we looked in particular in the paper at the Danish model where the banks issue a covered bond, which is specifically for mortgages. If there is a 20-year mortgage, it is covered by a 20-year bond on the other side, so there is a match and that seems to work very well for them and brings a lot of stability and certainty to the market.

We have seen a lack of a predictable and consistent approach to dealing with those in arrears and we strongly suggest that this needs to change. There seems to be what might be termed a postcode or Eircode lottery, where the speed with which issues are resolved depends on where one is living. Different District Courts do different things, the registrars do a lot of mediation in bringing banks and lenders together. There is a great deal of variation. That impacts on consumers but it also means it increases the risk for banks and that means they need more capital to write the loans and that means the loans are most costly.

This is a very significant and complex market. We need to think very carefully about any proposed interventions or structural changes and have a detailed assessment of their implications and consequences. This is big challenge for us all. It is a challenge for members as policy makers, for us as regulators in the areas in which we would like to get involved and for the lenders as well. We feel confident that the options we have set out will at least facilitate that consideration and if further progressed, could offer both consumers and financial institutions more choice and more certainty.

Chairman, we will be very happy to take any questions from the committee.