Oireachtas Joint and Select Committees
Thursday, 5 May 2016
Committee on Housing and Homelessness
Banking and Payments Federation Ireland
We will resume in public session. I ask that people turn off their mobile phones or turn them to flight mode as they interfere with the recording and broadcast of the proceedings.
I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
The witnesses' opening statements will be published on the committee website after the meeting. I am pleased to welcome the Banking and Payments Federation Ireland, represented by Mr. Noel Brett, Mr. Maurice Crowley and Mr. Felix O'Regan. I thank our guests for attending and for submitting documentation. I invite Mr. Brett to make his opening statement.
Mr. Noel Brett:
I thank the Chairman and members. I am very grateful for the opportunity to appear this afternoon to discuss the issue of housing and homelessness, with a particular emphasis on how obstacles that are currently impeding progress on this issue can be surmounted and the specific actions that might be needed to address the problem The Banking and Payments Federation Ireland, BPFI, is a membership organisation which represents banks active in the domestic retail market, in the international banking sector and in the payments sector.
The housing market cannot and should not be viewed as a single, homogenous sector, but rather an amalgam of sub-sectors, including social housing, affordable housing, rented accommodation and owner-occupied or mortgaged property. The homelessness issues arising are further complicated by the fact that there are regional variations and challenges. There is, therefore, no single generic solution. The challenge for public policy is to ensure the correct alignment between the needs of individuals and their families and the supply of various housing types. Success in meeting this public policy challenge requires a co-ordinated strategic response with full participation on the part of all of the stakeholders and relevant State agencies and Government Departments. Oversight is needed at Government and Oireachtas level so that this is driven on and delivered out.
On behalf of my colleagues in the banking industry, I wish to restate our commitment to engaging fully with the committee and with the actions it recommends at the conclusion of its deliberations. We want to ensure that our sector is fully engaged and that it helps to work creatively to deliver the elements of the national response which fall within the competence and remit of its members. No one sector on its own can address this issue. Every one of us can work on and address elements of a strategy.
Any financing provided by the banking sector to address supply and demand issues in each of the housing sub-sectors I have mentioned must comply in full with the regulatory requirements of the Central Bank of Ireland and must be viable for all parties.
It is essential that the public policy response to this crisis deliver quickly and have some early wins in all of the sub-sectors I have mentioned. We must have the right categories of housing stock in the correct locations and that policy must be sustainable in the longer term. We need to be very careful not to repeat the mistakes of the past and to learn from them in our rush to collectively address the immediate pressure of homelessness. Whatever solutions are arrived at and whatever part the sector in which I am involved can play in it, we must learn from the past.
The wider banking sector is interested in discussing how it might play a role in supporting and financing the building of housing supply and capacity in each of the sub-sectors. I am happy to take back and explore in detail with the broader banking sector any involvement the committee might consider the sector can have. That is on the basis that it will be individual member banks that will have to determine their level of involvement. Of course, it must be viable and sustainable over the lifetime of financing facilities provided for all parties to the agreements.
If we had been here some time ago, we might have been talking in a different language about mortgage supply and its availability. Thankfully, things have improved significantly and our members are fully committed to providing mortgage finance for those who require housing in that segment or sub-sector and who have the capacity to borrow and repay. However, banks must do so on a prudent basis in a competitive market. In my submission to the committee which I will not read through in detail I have provided some detail on mortgage drawdowns from the first quarter of 2014 through to data which we will be publishing after this meeting for the first quarter of 2016. At a high level we can see that €4.9 billion in total was drawn down in 2015. That was a 26% increase on the mortgage drawdown in 2014. That equates to 27,324 new mortgages. I am conscious that this addresses just one sub-sector of housing and housing demand. In graph 2 it is interesting to note that the role of the first-time buyer is now the single largest category, accounting for close to half of all mortgages drawn down.
Another graph shows the drawdown volumes by first-time buyer, mover-purchaser, rental investment or the buy-to-let sector, remortgaging or switching and top-up mortgages. I am pleased to be in a position to provide the committee with unpublished figures for the first quarter of 2016. They show that 5,446 mortgages, equating to a value of €1 billion, were drawn down in that quarter. While this might appear to represent a slight downturn on the figure in the equivalent quarter in 2015, all commentators would agree that there were specific factors that caused the figure in the first quarter of 2015 to be higher than expected. It is also interesting to see in the figures that the value of re-mortgaging, or switching, continues to increase, although from a very low level. This is one of the countries in Europe that now has a mortgage switching process. I know from talking to my colleagues at the European Banking Federation that many of them do not have that kind of formal arrangement. There is a formal switching process now in place and we can see that 392 re-mortgages took place between January and March this year to a value of €78 million. That is a 128% increase on the figure for the same period last year.
All of that lending is taking place within the context of the Central Bank’s macro-prudential rules in the mortgage and housing markets. The sector and my members fully recognise the importance of ensuring the stability of the banking system and protecting households from the risks of over-indebtedness. We support the Central Bank on the need to ensure a credit-driven bubble does not take hold again in Ireland. We note and acknowledge the intention of the Central Bank to maintain these rules. However, we welcome the Governor’s announcement that written submissions will be invited and considered on the calibration and application of the rules of the Central Bank. Clearly, as a sector, we will consult our members and, as we did last time round, make a written submission to the Governor for his consideration.
It is our view that the most significant impact of the Central Bank rules is the requirement for first-time buyers to save significant funds in advance of being considered for a mortgage.
The most significant impact of the Central Bank rules for first-time buyers is the requirement to have saved significant funds in advance of being considered for a mortgage. This is most acutely felt in Dublin where, based on the average first-time buyer house price of €280,000, a first-time buyer needs to have a deposit of €35,000, equivalent to 12.5% of the house price. The burden to raise a deposit is greater again and is insurmountable for many of those who are currently renting given the escalation in rents, most notably in Dublin, in the past 12-18 months.
It is important to point out that a recalibration of the Central Bank rules in itself will not address all the problems faced in the housing market or the more immediate crisis of homelessness. The most fundamental problem is a shortage of suitable supply in key locations where demand is greatest. A myriad of factors put forward by commentators may be beyond the remit of banks, such as building costs, the planning process and regulations, land availability and use, and the capacity of developers to raise equity. Banks are important providers of development finance to viable construction projects but they are not, and cannot be, the providers of 100% finance and the builder needs to bring a significant element of equity to the project. That is a challenge for many builders and developers right now.
The general consensus amongst housing market stakeholders is that there is a medium- to long-term requirement to build 25,000 housing units per annum nationally and around 7,000 units in Dublin. There were approximately 8,100 commencements in 2015, representing a 5% increase nationwide over 2014, but a breakdown of the data shows that nearly 40% of these commencements were for one-off builds and only 38% were within the boundaries of Dublin local authorities where the pressure is most acute in all sectors. The ongoing shortfall in housing supply across the four subsectors is likely to further reduce the availability of housing units both for buyers and renters with increased pressure on rent levels, particularly in Dublin.
Finally, I will outline how BPFI and our member banks are working with borrowers who are struggling with mortgage and other debts. We believe that customer engagement with lenders is paramount and this is borne out by the continuing downward trend in the level of loan arrears. We consistently recommend four key actions for borrowers to follow: contact your lender as soon as possible; look at your financial situation with the help of a standard financial statement; always respond to communications from your lender; and avail of expert advice and assistance from the range of State agencies, voluntary sector bodies and professionals that are now available, in many cases free of charge. It is a daunting situation for any individual or family and it is imperative people engage and get good quality, independent advice. I know from dealing with Deputies over the past number of years that many of them are aware of the various schemes that are in place but I have added details of the schemes in the pack for information.
It is important we, and our member banks, work with trusted third parties to create a broad range of options for customers in distress to draw upon, depending on their circumstances. Many of these cases are unique and different people will require different levels of external support. I draw members' attention, in particular, to the Money Advice and Budgeting Service, which we find to be very professional and with which we have a long history of engagement. Details of a BPFI-MABS framework agreement for dealing with late-stage mortgage arrears, which is currently being finalised, are included in the pack. The BPFI-MABS protocol is already in place for dealing with unsecured debt such as personal loans, overdrafts and credit cards, as well as mortgage debt, and it is working very well.
We also work very closely with the Insolvency Service of Ireland to help overindebted customers get back on track through a range of options, such as debt relief notices, debt settlement arrangements and the personal insolvency arrangements.
We do so following the changes introduced by the Oireachtas 12 months ago in terms of the new bankruptcy regime.
The mortgage-to-rent scheme is one our members are very keen to continue to engage with and expand further if possible. To date, 156 cases have been completed and a further 637 are actively being worked on. We have had very constructive engagement from the State agencies, particular from the Housing Agency, the Department of the Environment, Community and Local Government and the Citizens Information Bureau in the context of trying to ensure that we can play a much more creative and productive role in maximising that scheme for families who meet the criteria and are in distress.
We have signed a mortgage advice protocol with a number of Departments. I have included it for members in the presentation. There is a commitment from all of the signatories to pay €250 for financial advice from an independent accountant to a borrower offered a long-term forbearance so that individual understands exactly what is being offered and is able to make the best decision for his or her family in light of his or her circumstances.
On general consumer information, in partnership with the Department of the Taoiseach and the Department of Finance we provided a leaflet recently to everybody in mortgage arrears and also to citizens information offices, libraries, every Oireachtas Member and so on. That leaflet provides plain English information and we obtained a National Adult Literacy Agency, NALA, plain English mark in respect of the accessibility of said information. The leaflet has been delivered to all those who are in distress and it sets out their options in clear, plain English and urges them to get advice and to engage. We also have a residential tenant's guide to receivership, which is actively pushed out by lenders and other entities to people who find themselves in that situation.
I and my sector recognise that we have an important role to play in supporting housing supply and in addressing the issue of homelessness. We also recognise that banks, or lenders in general, are but one part of a much bigger solution to the public policy challenge to which I referred at the outset. Our organisation's members and the industry are willing and keen to play their part in the development of a co-ordinated strategic response which delivers sustainable housing capacity across all the housing sub-sectors, not just one sub-sector. That addresses the issue of homelessness.
Our fundamental view is that what we are now facing is predominantly a supply problem in each of the four sub-sectors I mentioned. We look forward to taking questions from Deputies. If there is information I do not have to hand, I will revert to them immediately and provide it. We look forward to engaging, on receipt of the committee's report, on any individual items in respect of which it believes our sector can play a part.
I thank Mr. Brett for his opening statement and the supporting documentation. A number of members will ask questions and Mr. Brett might deal with them collectively rather than individually. When doing so, he might elaborate on one item that arose. He stated that 156 cases have been completed in the mortgage-to-rent scheme, which seems a very small number in terms of the scale. In such circumstances, what are the real challenges? Everybody agrees that it has the potential to be an effective scheme but 156 cases seems to be a drop in the ocean. Mr. Brett might elaborate on how that could be developed to be more effective and meaningful. The first speaker to indicate is Deputy Durkan.
I thank Mr. Brett and his colleagues for coming before the committee and for the useful information they have provided. I am sure the replies to the questions will be even more useful. I should mention that I have had the pleasure of meeting the witnesses' predecessors, their predecessors' predecessors and even the latter's predecessors on the same issue.
My first question concerns the need to accommodate those in arrears who are making a valid and valiant attempt to meet their mortgage repayments and the extent to which the banks are willing to accommodate them in a particularly special way. Given that the banks were accommodated by the taxpayer and shown great compassion during the bailout, would it not be a natural expectation that the members of the public, who continue to participate in the rescue of the banking system, would be treated with some degree of compassion? We all deal with individual cases - I have dealt with scores of these cases as our visitors will know - and it is not always the fault of a borrower who allegedly did not contact his or her bank.
There is a minority of those. There is also a minority who do not wish to pay and want to get a better deal, and eventually it will come to them. There is also a great majority who have made considerable efforts and sacrifices to meet their monthly payments or a portion thereof within their capacity to pay over the past number of years, and I believe that they deserve to be treated fairly and accommodated. My question is to what extent can the banks do that?
I have two or three more questions. On mortgage availability, I am aware the Chairman has dealt with scores of people. I have certainly done so. At present, the availability of mortgages is extremely difficult. Coming at the time we do, after a bubble, a crash and all that goes with it, I can understand that. However, I would have thought that where a person is renting a house and has shown that he or she has been paying the rent for the past five or six years, it should be - this relates to the Central Bank as well - an indication of his or her ability to pay. In any event, if such a person is paying a mortgage-like payment to a landlord or financial institution, I do not see how such a person will be able to raise €35,000 or €40,000 by way of savings. To what extent, in the event of the Central Bank being amenable to this, will the banking system be able to respond?
My other question is a general one on distressed mortgages. I refer to the sale of distressed mortgages to venture or vulture capitalists, whichever way one wants to see them. There is a job for Government here in ensuring that those who acquire such loans, that is, the unregulated third parties, treat the borrowers in the same way as those who are regulated. How would Banking and Payments Federation Ireland view the introduction of legislation to ensure that in the purchasing of distressed mortgages? By distressed mortgages, I mean ones that are unsustainable, not by the bank's definition but as determined by an independent arbitrary body which means that there is no chance of the borrower ever being able to make their payments. Given that only five or six years ago the same lending institutions awarded the loans in question and thought they were all right, the question is, how do we bridge that gap and how do we treat those who find themselves in a difficult position?
On the credit bubble I will wait for official from the Central Bank to appear before the committee. However, I would caution that if the Central Bank decides to open the floodgates, we may have a repeat of the situation at the time that benchmarking was introduced. The reason benchmarking had to be introduced in this country was because workers could no longer afford to pay their mortgage and live.
On the credit ratings, when I was a Member of the House ten years I could still qualify for a local authority loan. I am a Member of the House for many years and I could not now afford the level of mortgage repayments, even with interest rates much lower. I refer to the amount of the repayments expected, for example, €1,500, €1,600 and €1,700, and up to €2,500. From my experience, those ones, beyond €1,400 or €1,500 a month, are the real danger areas. Can I ask what-----
The point I wanted to make before I was interrupted was, to what extent can people be given a credit rating on the basis of their rental record?
My last point relates to the mortgage-to-rent scheme which has already been referred to. Unfortunately, the scheme is all directed towards the voluntary housing agencies the activities of which I have referred to on many occasions. To what extent is Banking and Payments Federation Ireland prepared to refer such cases to the local authorities which would be able to enhance their housing stock as a result if they are in a position to purchase?
I thank Mr. Brett for the presentation and the supporting documentation.
If this committee is to have any value, it will identify, with the help of the witnesses, I hope, things that can be done that are not currently being done to improve circumstances, particularly for those experiencing homelessness or at risk of homelessness. We are less interested in people justifying what they have done to date — I do not mean that in a negative way — than trying to fix problems that very clearly exist. The point is not to get the delegation to repeat what has happened up to now but to try to identify whether additional steps, such as changes in policy, legislation or practice, could be taken that could assist in our making of recommendations to central government.
I will outline the key issues. First, while it is true that the overall levels of mortgage distress are reducing, there is still a very large cohort, comprising in excess of 40,000 households, in long-term mortgage arrears. That is the group about which we are really concerned because many in that group are either losing the family home or becoming homeless. They may be buy-to-let landlords whose tenants are becoming homeless.
Many of us are concerned that too few among this cohort are being offered mortgage-to-rent arrangements or split mortgages. Many of the distressed mortgages are now being sold on by the federation's members to unregulated funds at significant discounts. If those significant discounts were actually offered in the first instance to the homeowners, that might make their mortgages sustainable. I am keen to know what we can do to make split mortgages or mortgage-to-rent arrangements more available, particularly to the most distressed cohort. How can we reduce the number of mortgages being sold on to unregulated vulture funds, a practice which is contributing to the homelessness crisis?
Another issue is relationship breakdown. The most recent report from the homelessness agency showed that the largest contributor to homelessness at present is relationship breakdown. Approximately 25% is the figure given. Many of the people affected are not able to gain access to social housing supports because they are tied into a mortgage. Based on the cases I am dealing with, I note that many of the federation’s members are refusing to remove the party who is leaving the family home as part of the relationship breakdown from the mortgage arrangement. How do we deal with that to try to ensure those people who come out of the family home because of a relationship breakdown are not denied access to social housing support, thus ending up homeless?
The other issue is vacant possessions. Too many of the federation’s members are now seeking vacant possession on repossession, which is forcing an increasing number of rental tenants into homelessness. In some cases, the federation’s members are sitting on vacant properties that they have repossessed in areas of high social housing demand and will not put them on the market because they are waiting for their values to appreciate. It might not be a statistically large number of houses statewide but in certain areas of the city, it is a large number. We need to examine this. I am interested in the witnesses’ view on that.
On the supply end, representatives of the Society of Chartered Surveyors Ireland were present and said to the committee that, for them, one of the biggest problems is the high cost and difficulty for private developers of getting credit, particularly credit from banks. I am not interested in whether the federation believes that is true but wish to know how we can reduce the cost of credit to good developers who are seeking to build homes that are more affordable.
My understanding of the Central Bank’s mortgage lending rules is that part of their purpose is to break the link between house price inflation and the availability of credit. Therefore, if one tries to find a way of restricting an aspect of that credit for higher-cost homes, it will eventually bring down the cost of homes, particularly first-time buyer homes. I keep hearing a figure of €280,000, which is in the federation’s documentation, or €300,000, but the vast majority of first-time buyers are not buying houses valued worth anything close to those prices. They are buying or seeking to buy homes at prices below €220,000.
I am interested in knowing how many mortgage refusals or mortgages above €220,000 have been refused since the introduction of the new rules on the grounds of people not having a sufficient deposit. I am not convinced that this is actually causing the kinds of problems that arise in terms of restricting access to purchasers. I have yet to see any data. If they exist, I would be interested in seeing them.
While the Central Bank's rules clearly create difficulties for those first-time buyers who are purchasing homes valued at more than €220,000, there is a certain degree of prudence in what it is trying to do, which is to reduce the overall amount of borrowing that people require. Surely, from the banking point of view, given where we have all come from in the past 15 years, that is a prudent course of action. I am interested in knowing whether the federation agrees with that.
I thank the delegates for their presentations. I do not want to repeat any of the questions already asked. However, there is one or two questions I would like to ask. Do the delegates ever have mystery shops or encourage banks to have mystery shops whereby they would pretend they are in the role of the person in debt and try to contact his or her lender?
I tried it last week, not in a personal capacity but for one of my constituents. I rang up to be told that there is no way to get through to the mortgage arrears department. One can only ring in but it cannot return a call. One cannot be put directly through but can only go through the main switch. It was one of the main banks the witnesses mentioned. I can talk to them about it later. I found it amazing that six times I tried to get through. I came at it from different angles but at no stage could I make contact.
SFSs require people to do not just one run but numerous trial runs. Communications is poor in terms of lenders going back to the persons in question. On the voluntary sector, I think it is amazing that people in dire distress are told to go to the voluntary sector for advice. That is what I picked up. How is the federation going to accommodate and support those in arrears? The witnesses are dead right that we all have a role to play, be it Oireachtas Members, county councils, planners or banks, but I wonder is the federation going to go back to its members and tell them to bring a halt to this for the next six months and deal with the housing crisis. Will the witnesses ask the banks to please stop issuing letters and deal with what is there at the moment?
How many are three months, six months, nine months and over 12 months in arrears, respectively? How many are €5,000, €10,000, €20,000 and €30,000 in arrears, respectively? They are the people who are the pin of their collars. They are the people who are working day and night to try to make it. The person I was dealing with last week was €30,000 in arrears and was hit with a High Court summons for her property to be taken from her. I found it amazing that she was €30,000 in arrears but when she tried to make numerous phone calls, including with my help, it was to no avail.
That is my story on this. There is a lot there to be digested. The federation represents numerous banks and should have empathy. As Deputy Durkan said earlier, the banks were supported in the past and it is now time for the federation to show empathy to the householder in distress without fuelling a crisis that is already in disarray.
A lot of the points have been made but I want to mention two things. I have a huge issue with the mortgage-to-rent scheme. It could be a very good scheme but I have come across countless cases where it is not working. It is too difficult. People are being rejected or are not given enough information. People have often been in court already and had their cases adjourned but it is only at that stage, when they contact a public representative, that they hear about the scheme. It does not appear to be actively made known to people. Of the 637 cases that are active, how long have they been worked on? I do not expect the witnesses to have the figures here but I ask that we get a breakdown of the stages they are at. In respect of the 156 cases, how long did it take for the process to happen from start to finish? While the mortgage-to-rent scheme looks good on paper, I often feel it is no more than that. It may be that it is designed to deflect from the problem in that while it looks good that a scheme exists, it is not working in reality.
Too often, I come across situations where the banks will simply not negotiate with people. They will not meet people or speak to them. They push for voluntary surrender. A lot of the mortgage crises in my constituency involve mortgages of €1,000 to €1,2000 per month. One has people saying they can pay €700 or €750 but they are still told that it is not sustainable. Surely, they should be given an opportunity to see if it is sustainable. Many people face a blank wall when they try to look into this, and it takes a great deal for someone to do that. While everyone says contacting one's lender is the thing to do, it is the very thing people are afraid of. People feel like they are putting a red circle around themselves in doing that and that things will get worse once the lender knows about them. When people actually take that step, too often they are met with a wall of silence or find that whatever the bank wants to do is pushed on them, including voluntary surrender. I do not see how that could be good scheme anyone. Realistically, if someone is struggling with a mortgage, the bank sells the property and the person still owes €100,000, the bank is never going to get the money back. Meanwhile, a house is sitting there idle.
There is no sense in it. While it is easy to tell people to contact their lenders, what attitude do the banks have when they do? Unfortunately, in my experience it has been extremely negative.
Mr. Noel Brett:
The Deputy asked how many people are in arrears. Some 120,739 private dwelling houses have had restructured arrangements put in place. According to the most recent figures from the Central Bank, 86.5% of them are meeting the terms of their arrangements in full.
The Deputy asked about the mortgage-to-rent scheme, which a number of other members also highlighted. It might be interesting to ask the Department and the Housing Agency to brief the committee regarding their perspective on the scheme. Our lenders are extremely keen on the mortgage-to-rent scheme. It is a good solution for eligible families and mortgage holders, lenders and the State. It keeps families in their houses, children close to their local schools and stops people from having to move. As well as the social inclusion aspect, it makes financial sense for the lender and for the individual and their family.
We have had much engagement with the Citizens Information Board, the Department and the Housing Agency, particularly with people such as Claire Feeney, Nina Murray and Angela Black, and have ironed out many of the early problems. For example, there are difficulties with people who do not want to be in the scheme and, in the early stages, banks referred several cases which turned out to be ineligible. Although we got off to a good start with many referrals, as the system worked through them - the mortgage-to-rent scheme is run by the State - cases were terminated. Reasons for which cases were terminated included: ineligibility; a borrower who would not agree or who changed his or her mind about the process; a change in borrower circumstances; and the failure by the approved housing body and the lender to agree on price. For example, the lender and the housing body would carry out a valuation on the property and the two might be a long way apart. The lender is in a legal bind in that it is obliged to get the highest value it possibly can for the mortgage holder, given that it will hold the residual debt. There has been much progress and now there is one agreed valuation, which will speed up the process.
Lenders are very keen on the scheme, which is much more efficient. Going through the legal process and taking possession of somebody's house has to be a last resort. It is an extremely costly and protracted process, and is not the best outcome for the mortgage holder and his or her family or for the lender. We would like even more push through into the mortgage-to-rent scheme. There may be a challenge for the State in providing funding for it. The State is buying those properties at a reduced price, keeping the families in them and applying the mortgage-to-rent scheme. There may be issues for the State regarding how much funding it is prepared to put into the scheme. The lenders have moved a long way in terms of the house valuations and prices.
Some people raise issues and concerns regarding the mortgage-to-rent scheme. There is a view that people can move up a housing list by virtue of being in the scheme. This is a social policy issue, not a banking issue. We have much better processes in place in each of the individual lenders, and the latter are making referrals. It would be interesting for the members to hear the other side of the equation, namely, what the Department and the Housing Agency think. We should maximise the scheme and use it much more. It is a good scheme.
There were many teething problems around valuation and the process.
The scheme is closing its cases at a much quicker rate mainly due to better conveyancing processes at some of the banks. In the early days, there was a lot of disagreement about the value of houses. The lender had a value, the person who had the mortgage had another value in his or her mind, the AHB would be in the middle and never the twain would meet. The move to one agreed valuation clearly removes that block and that is significant. We are grateful for the engagement we have had with State agencies to move that on.
The key issue with mortgage availability has to be ability to repay and there is no point in indebting people who do not have the ability to repay. I agree a track record of paying rent clearly demonstrates a person is able to pay over a sustained period often higher amounts than a mortgage repayment for a similar property and often higher than a mortgage repayment with some stress on it, such as future interest rate increases. The key issue has to be ability to repay under stress. Bank lending rules, in as much as they can, take account of proven ability to repay. I am conscious that the Deputy said the committee would have engagement with the Central Bank and this may be an issue that should be discussed with its officials in the context of the macroprudential rules.
The sale of distressed mortgages to investors or other forms of------
Mr. Noel Brett:
We welcomed as an industry the regulation of loan servicers, which was a big step, because until recently, the lender was regulated but the loan servicer was not. Thankfully, servicers are now regulated and we have taken some of them into our membership on the basis that they are regulated entities. Clearly, it is very much within the gift of the Central Bank, as the regulator, to determine how best it wants to deal with the next step in terms of investors. We do not represent investors or speculators or others who buy in that context and, therefore, I do not have a view on what their view might be. It is very much within the gift of the regulator to determine the most appropriate policy intervention but our submission welcomes and supports the regulation of loan servicers. Clearly, that is an important part of the equation and I agree with the Deputy that there is an unregulated third element. That is perhaps something for further discussion with the Central Bank.
With regard to a credit bubble, I agree there is no point driving up house prices, thereby causing further indebtedness of individuals and families. That will not address the core issue we are discussing, which is housing and homelessness. An increase in supply is needed rather than pushing up prices and increasing indebtedness without solving the problem. A co-ordinated intervention is needed on four levels. We need a proper approach to social housing, an integrated approach to affordable housing and interventions in the private rented sector.
Finally, the element my members are predominantly involved in is the mortgage sector. I have set out mortgage levels. We are supportive of the Central Bank's intention of trying to prevent a credit driven bubble. It is important that the Governor is seeking written submissions from all stakeholders. We will submit on that basis but we are supportive of the principle of trying to avoid another credit driven bubble. We have to understand what happened last time out, not just in our sector, and we cannot repeat it. I am of the same mind as the Deputy in terms of not driving up house prices through intervention and making sure we do not force families into further indebtedness. Supply is the key issue in each of the four areas to which I referred and it will differ in various locations around the country.
Deputy Ó Broin asked about relationship breakdown. It is not an issue I have encountered. As a federation, we do not get involved between customers and their banks but it is an issue I will discuss with lenders. I might talk to the Deputy separately to try to understand the issues. I can imagine from the lenders' point of view that they have two parties to a mortgage, which has been granted on the ability to repay. If one of the people exits, that potentially is an issue.
I might talk to the committee separately about that matter, but I am willing and very keen to go back and talk to lenders about it.
In terms of vacant possession being sought, I am surprised to hear any lender would be sitting on vacant properties. Banks and lenders are not good operators of property or good at managing property as it is not their core business and all they would be doing is depreciating the value of their asset and adding cost for themselves. If it is just a localised problem, it would be useful for me to get the information and I will take up the matter with individual banks. It is not one of which I am aware across the industry and it seems to be an unusual practice. I am not saying I disagree and, if it is an issue, I will accept that it is, but I would like to go back and talk to the lenders concerned.
I have touched on the mortgage-to-rent scheme and hope I have answered the question for Deputy Eoin Ó Broin. In terms of supply, the big issue for me is equity in order that people can access appropriate housing. Clearly, we must not have a one-trick solution. The solution is not just providing loads and loads of credit and mortgages. Credit and mortgages are important for people in that sector who have the ability to repay, but that is not going to address the homelessness issue. There is a supply issue. I note with interest the other parties coming to give evidence. It is very important, whatever recommendations are brought forward by any of us coming to the table, that we realise there is no one solution and that every single solution needs to be stress-tested for unintended consequences. We must not go down the route of having just one solution.
With regard to private developers getting credit from my members, the message I have for the committee is that if lenders do not lend prudently and properly, they will not make a profit. However, they need to lend. One of the key challenges is to ensure people with enough equity come to the table to do those deals. It is interesting to talk to the Credit Review Office about those people who have been declined. The office has powers to force banks to look again at their decisions. Equity is the key issue. I believe there is a lot of credit available in the system. It is my understanding that, in many instances in the past, people used the equity from the previous development to leverage the next one. We now understand, as a country and sector, where that leads. Clearly, if people look to fund a development or business, they need to have equity. That is the challenge. The banks cannot provide 100% finance without equity. As a country, we have to find a way to plug the equity gap. There are a number of sources of funding; for example, there is straightforward bank funding, State funding, strategic investment fund money and European Investment Bank funding. The problem is equity and how we bridge the equity gap. Continuing to leverage on past performance is not the way to go. That is an important point. The role of the Credit Review Office, its findings and powers are significant in this regard. It might be interesting for the committee to even receive a written submission from the Credit Review Office on what its findings and views are on the housing sector.
With regard to the Central Bank's rules and Deputy Eoin Ó Broin's point on the rate of refusals above and below the figure of €220,000, I do not have that data available. I suspect the Central Bank would have them, but I do not receive individual data and I am not sure if my colleagues do.
Mr. Maurice Crowley:
I am not even sure they do receive the refusal level data as that is done bank by bank and I am not even sure they are published. We took €280,000 as the typical price in Dublin and looked at the level of deposit a buyer would have to have and there is clearly a challenge in having a deposit of that amount. Other than that, for the bank, it comes back to the affordability discussion we have had and ability to pay. That is where the bank starts. If one looks at the two types of cap, the loan-to-value cap and the loan-to-income cap, it is the loan-to-income cap on which the banks focus the most.
Mr. Noel Brett:
Deputy Anne Rabbitte asked a very straight question about the difficulty in getting through to an individual lender.
Before I leave, if I have the time, I might get those details from the Deputy and I will speak to the CEO of that bank this evening. That is clearly not a good situation. What I am saying to people is that they should engage with their lenders and with whatever independent advice best suits their situations. However, if they have difficulty getting through to the lender, clearly we have got something wrong and I will take that up with that individual bank CEO this evening.
Mr. Noel Brett:
The Deputy talked about the lenders just saying, "Go and contact the voluntary sector." We work with all of the sectors, including Money Advice & Budgeting Service, MABS, which is in the State sector, and the Insolvency Service of Ireland, ISI. Several of my member lenders funded in the millions StepChange, which is an independent, telephone-based debt advice charity, to set it up and pay in full for its operation, so it is not the case that we are saying to people, "Just go and talk to a charity." We are recommending that people go and talk to whichever body gives the advice that best fits their situations and with which they personally, as individuals and families, are most comfortable dealing. I suspect that in many instances constituents will be coming into Deputies' and their colleagues' offices in the first instance and Deputies may be the gatekeepers, recommending that they go a particular route. The important thing is that there is a menu for people and that they can pick the solutions that best suit them. We are finding, for example, that there is a certain cohort of people who prefer to do this business over the telephone, through StepChange's or MABS's national helpline. There are other borrowers who much prefer to have a face-to-face sit-down with somebody and a proper discussion.
In addition to what we have funded and done at an industry level, I am very conscious that several of the lenders have funded and continue to fund individual arrangements themselves. If one considers this on a bank-by-bank basis, they are all signatories to the initiatives we have taken at an industry level. In addition, virtually all of them have other arrangements in place, so I certainly would not want the perception to be that we are saying to people who are in terrible distress as families and individuals, "Just phone up a charity." What I was trying to make clear is that there is a menu of options - that is why I added them to the submission - up to and including independent private advice and professional advice. I really urge people first of all to recognise that they are in distress, to find the most appropriate level of support, to follow what we say in the leaflet and to choose the level with which they are most comfortable and the one that best meets their circumstances.
Regarding the standard financial statement, SFS, I have looked at it in detail. It is a very daunting document.
Mr. Noel Brett:
I suspect that if any of us around this table had to fill it in for our own personal circumstances, it would not be an easy process. That is why I urge people again to sit down with representatives from a body such as MABS or StepChange who have expertise in filling these in and who will walk through the documentation with them. I included the SFS in my pack because I wanted to show the Deputies just how complicated it is. This process is not set by the lenders. This is the process that borrowers must go through. It can be done, and there are people in the country who have a lot of expertise in assisting people. We must understand that there can be language issues, literacy issues and numeracy issues - all the more reason to engage with one of these supports and choose the one with which an individual is most comfortable.
Regarding the number of those in arrears, the Central Bank publishes this data. I have some very high-level data that I am very happy to go through. Again I am relying here on figures from the Central Bank. I am obviously precluded from reaching into individual lenders. As a federation, we are precluded on competition grounds from getting into some of these issues, so we will rely on published Central Bank figures. According to its most recent figures, as of the end of 2015 - I anticipate these figures will have improved even further - the number of mortgages in arrears continues to fall. It currently stands at 88,292, which is 11.8% of all accounts in arrears. In terms of two categories, private dwelling houses and buy-to-let properties, 61,931 accounts are 90 days or more in arrears. The category we should all be most concerned about is those who are 720 days or more in arrears. There are 36,351 accounts in that category. That number has been falling, thankfully, since 2015 and overall, as I said to the Chairman earlier, of private dwelling houses, 120,739 accounts have been restructured to date. Some 86.5% of those are meeting the arrangements in full.
Of the 23,000 accounts which are more than 90 days in arrears those of most concern are the 15,064 accounts which are 720 days in arrears. I cannot state enough the importance of engagement between the borrower and the lender. It is in the interest of everybody, including the lender, to address the issue and try to resolve it. Rent receivers have been appointed to 5,967 accounts. If the committee wants more specific granularity the clerk can ring me and if I do not have it myself I will certainly try to source it from the Central Bank. The committee may choose to source the information directly as it is on the Central Bank's website. I was not expecting to get into this level of detail. I thought I might be speaking more about broader macrosocial policy. If the committee clarifies what it needs I will certainly do my best to get it.
I am not sure if I have covered adequately the issue raised by Deputy Funchion on people rejected from the mortgage-to-rent scheme. I have highlighted the reasons. I will admit that from our perspective in the early days of the scheme the lenders were probably so keen they referred cases which, with the benefit of hindsight, did not strictly meet the criteria. It may be interesting for the committee to get the perspective of the Department of the Environment, Community and Local Government and the Housing Agency. This is the key piece in terms of mortgage to rent. I ask the Deputy to please flag it if I have not covered an issue.
Mr. Brett said in his introduction that homelessness is largely a supply issue, but homelessness is being caused by repossessions by the banks. It is not just a supply issue. People in houses are being put out of them, otherwise homelessness would not be increasing. It is not just supply and Mr. Brett needs to correct this. The biggest reason I see for people being made homeless now is they live in a rented property which has been repossessed by a bank. This is bar no other reason. Mr. Brett did not mention this in his introduction. Either the banks put pressure on the owner of a property to sell it or, usually, they pass it over to a receiver to do the evicting. They do not ask too many questions about who lives in the house. There is a code of conduct for people in mortgage arrears, and I am not saying it is sufficient because it is not, but there is no code to protect very vulnerable people living in private rented accommodation, which is an ever growing sector of society. They are the biggest group in poverty due to rent increases and cuts if some of them are on rent supplement.
Many families have been in emergency accommodation for up to a year because they were evicted by receivers working for the banks. There has been an increase in this area. The Government should outlaw this while there is a housing emergency, but if it fails to do so will the banks take it upon themselves voluntarily to insist that no family is put out into emergency accommodation, which is a cost to the State, if they do not have anywhere else to go? They do not have anywhere else to go, and this is reality, but I have not heard Mr. Brett say anything about this.
The banks had an immediate role in the housing crisis and there has been a huge cut in the capital budget for social housing. From 2008 to 2014, €11.4 billion was removed from the capital budget for social housing. This coincided with the bailout of the banks by taxpayers. This is why it was cut. The bailout of the banks and speculators played a role in cutting social housing spending. In 2008, €1.4 billion was spent on social housing and last year €500 million was spent on it, so it is approximately one third of what it used to be. It relates to the recession brought about by the financial sector.
With regard to people in mortgage arrears, be they buy to let owners or home owners, does Mr. Brett agree there should be a more generalised writedown on mortgage arrears at this stage?
The Housing Agency provided the committee with data on restructures and so on. It is all very well for people to say there is a need for more split mortgages and so on but even the Housing Agency agrees that is only delaying the inevitable for the person unless his or her financial circumstances improve.
The banks appear to be more willing to write down the debts of developers than they are to write down mortgage debts. Between January 2014 and June 2015, Allied Irish Bank, AIB, wrote off more than €4 billion in commercial property loans but only €820 million in mortgage debt, including in respect of buy-to-let properties, despite the fact the bank's mortgage books are larger than its commercial property sector loan books. It appears to be a case of one law for developers, who obviously do not have money, and another for other people who bought houses at overly inflated prices, who also do not have money. There appears to be a generous attitude on the part of the banks towards the developers that is not replicated to home owners.
I will be brief. Mr. Brett spoke about the level of engagement by the banks with people. I am sure that like me other Deputies have been hearing from people from every county in Ireland that the banks are very difficult to work it and that they are inflexible and lacking in understanding and compassion. That the Irish banks would be ten thousand leagues under the sea but for the fact the taxpayer bailed them out is not lost on the people. People expected a social dividend of some sort but they did not get it.
Mr. Brett made the point that eviction is not the best outcome for the lender, which is true. It is also not the best outcome for the tenant or mortgage holder. From an economic point of view, I would be sceptical as to whether there is much merit in the banks evicting anybody. I do not believe that is a good idea financially. It has caused untold social hardship and has driven people into poverty. I do not think it was a good business decision by the Irish banks to go down this route, irrespective of the lack of activity from the State sector. I would welcome the delegates' views on those issues.
On the commercial side, currently a person wishing to build 20 houses on a vacant site in Dublin or in any other town in Ireland would find it very difficult - almost impossible - to get money for that development from an Irish bank. We all remember a time when the banks were contacting us asking us if we wanted money. Now, it is impossible to get money. The banks in Ireland have availed of incredibly cheap money from the European Central Bank, ECB, but they have invested it elsewhere rather than in Ireland. The ECB in providing that money did so on the basis that the banks wanted to help our economy recover, in particular in light of the people having bailed them out. It appears, however, that the banks have invested that money in places where there is less risk involved. The point I am trying to make is that the people I represent are sore about the fact fairness has not been applied in terms of the incredible write-downs given to IBRC and NAMA while they find it difficult to get any write-down.
Before I invite Mr. Brett to respond, I want to reiterate the point made by Deputy Coppinger in regard to landlords against whom the banks are taking action.
From my perspective, in all cases the banks appear to want the houses vacant, with no tenants. We are examining a housing crisis, which many of us view as an emergency, and we are considering things that could be done as short-term solutions. We would hold local authorities to account for the voids they have and how quickly they can turn them around. Has the banking sector any idea how many properties and units of accommodation fall into this category, where the banks have taken actions against landlords who are in difficulty and the properties are now vacant when they could be tenanted? Does the banking sector have a view on the capacity that exists?
Mr. Noel Brett:
I will deal with the Chairman's final question first. That refers to Deputy Ó Broin's question earlier about people sitting on vacant properties. I will go back and speak with members, although I am not aware of that being an issue. It would be in people's interest not to have vacant properties depreciating in value, being vandalised and so forth. I will go away and respond to that question.
To clarify for Deputy Coppinger, I am not suggesting that homelessness in the acute form we are seeing at present is purely a supply issue. What I said earlier is that there is a supply issue. In terms of broad macrosocial policy, there is a supply issue with social housing, affordable housing and rented accommodation. There is also an issue with owned or mortgaged accommodation. It is clear that there is a good supply of mortgage credit but there is not a good supply of houses for people in that category to buy. I take the Deputy's point, which is very well made, in terms of Ireland's social policy going back not just to the crash but also perhaps a little further. Decisions were taken about how social and affordable housing was provided in this country and, clearly, the country has not provided adequate social or affordable housing for quite a long period of time. That is exacerbated now due to increased rents and a shortage of homes for people to buy.
Thankfully, increasing employment is important in terms of people's ability to deal with some of the pressures they face. However, as I keep saying to the committee, we must avoid another credit bubble. We must find mechanisms to put supply in those four sub-sectors where it is needed. That is the key issue. All of these things have unintended consequences and we must be clear about how money transfers across the economy. An intervention in one sector costs somebody in another sector, by which I mean what a subsidy in one sector does to the availability of social housing, because this is a zero-sum game. It is very important to be clear that I am not suggesting homelessness can be sorted simply by supply. It is a far more complex issue and it cuts across many different elements of social and public policy in Ireland.
Perhaps I should have made it clearer at the outset that we, as a federation, do not get into the practices of individual banks or the competitive issues between banks. I am specifically precluded by competition law from doing that. Unfortunately, I am not in a position to tell the committee why a particular bank takes a certain line. They all must take individual business decisions. There must be a sustainable, functioning banking system for an economy to function properly and effectively for all of its citizens, . The banking system is important in an economy. Individual banks must look at the pressures they face and the business model they follow, and they must make individual decisions. I do not have control or oversight over - or even knowledge of - those individual pieces.
To respond to Deputy Wallace on the banks' compassion and the eviction rates, what we have tried to do, at a cross-industry level and in the actions individual banks have taken, is try to equip borrowers in distress with the type of support they need to level up the power imbalance that can exist when one is in distress and trying to deal with one's lender. With regard to repossessions, the court statistics in Ireland show that in 2015 there were 722 repossessions on foot of court orders.
An additional number of houses were voluntarily surrendered. In an Irish context, the repossession rate constitutes 0.21% of all mortgages, whereas in the United Kingdom the repossession rate, at 0.65% of mortgages, is three times higher. I am not suggesting this makes repossessions okay - it does not - but I heard the previous Governor of the Central Bank state that in a fully functioning mortgage market, one would ordinarily expect up to 2% of mortgages to default and go down that route. This does not make matters any easier.
I agree with Deputy Mick Wallace on the issue of compassion. The number of restructured mortgages and the faster rate at which they are being worked through, as well as the fact that 86.5% of the mortgage holders affected are meeting the terms of their arrangement, provide good early evidence that banks are seeking to be more compassionate. They realise it is in everyone's interest, including those of the banks and the individuals who have borrowed money, to have mortgage holders remain in their properties. This returns us to the point that interventions such as the mortgage-to-rent scheme are needed for those who cannot go down this route.
It is important to reiterate that banks must be profitable and must survive. To do this, they need to do business. I am keen to engage with the committee on how we can play a viable role in the various sub-sectors of the housing market to which we referred a number of times.
The key issue with regard to developers will be equity. While a significant level of credit is available in the economy for builders and developers, the problem is that developers who have been bruised from the previous experience may not have equity. This presents a challenge as under the current rules, no bank or lender may lend 100% on any development, nor should they. That is a big challenge. Another challenge, one for which I do not have an answer, is how to find a way to get equity into the system. Speaking from the perspective of my members, they need to lend in this sector but only to viable entities which have equity.
On that issue, has the Banking and Payments Federation Ireland had discussions with representatives of the State on working with it to secure some form of guarantee that would allow banks to provide loans to builders who are prepared to build houses on sites to which they have access? Has there been engagement with the State on this issue?
Mr. Maurice Crowley:
The main conversations we have, and we do not have as many as we would like, are with the Strategic Banking Corporation of Ireland, SBCI, which appears to be the appropriate model for what the Deputy is discussing. We have been engaging in discussions with the SBCI at two levels, the first of which is not necessarily in the housing space. We started discussions with it on the small and medium enterprise side, namely, on general SME lending, because we were facing the same challenges with SMEs. The balance sheets of small and medium enterprises had been hit hard by the recession and they were seeking to borrow for working capital and investment. Banks were not in a position to lend 100% and we engaged in a conversation with the Strategic Banking Corporation of Ireland on that issue.
While there have not been as many conversations on the property side at this stage, we have had a number of conversations on the issue. We discussed, for example, whether avenues are available, either using pure equity - the point made by Deputy Mick Wallace - or an enhancement to the existing credit guarantee scheme launched by the Department of Enterprise, Jobs and Innovation. Equity does not have to be cash equity. Credit guarantee schemes would have a role to play and I understand the scheme is in the process of being enhanced. These issues all have a role to play.
To answer the Deputy's question, we have had conversations. As to whether they have gone as far as we would like them to go, that is probably not the case and they probably need to continue.
Will the witnesses answer my question as to whether the Banking and Payments Federation Ireland will develop a voluntary code of not evicting people, given that this is the biggest cause of homelessness?
Mr. Noel Brett:
To respond briefly to Deputy Mick Wallace, we would welcome recommendations from the committee on the issues highlighted by Mr. Crowley, for example, the matter of plugging the gap. European Investment Bank funding is also available. While funding is available, it is loan funding, whereas what we need is equity funding. That is the challenge we face. We would love this issue to be developed further and perhaps the committee will consider it.
On the issue of a voluntary code, as a trade body, it is not within our gift to do what the Deputy asks.
Certainly, I will talk to members and bring back to them several of the issues raised with me today, but it is not within my gift to say to the committee that we could do it; I do not have a mandate to do something like that.
An issue that arose was credit ratings which leads into Deputy Mick Wallace's question. Another part of the freeing of funds is access to credit. Equity is only one part of it. A person cannot access credit if his or her credit rating has been blemished in the past because it sits with him or her for X number of years. That is an issue at which we need to look if the building industry is to move forward. Its credit ratings have been affected by not being in the black.
Mr. Maurice Crowley:
It is a difficult one because a bank, in making a new loan, is going to be influenced by the experience of the past which was caused by a range of factors, not a single one. Certainly, it is something we can discuss with members. It is challenging because a lot of bank lending is based on track record and affordability, including the ability to pay rent in the past. There is no getting away from the fact that it colours the decision on credit availability.
Mr. Noel Brett:
I thank the committee for the invitation to appear before it. It is hugely important for the sector to state it wants to participate. We keenly await the committee's recommendations and look forward to engaging with it again at that stage. I reiterate that the key for customers in distress is getting independent advice and engaging. They should not ignore the problem, as it does not go away. If there are recommendations from the committee across the four sectors - we are not here to speak about mortgages only but also about social and affordable housing, the rented sector and the owner sector - we want to engage actively and be constructive on matters within the competence and remit of the banking sector. Clearly, whatever interventions are made need to be co-ordinated and stress-tested for unintended consequences. Many people will bring forward recommendations of all types. They all look good, but they need to be looked at in the round and stress-tested for unintended consequences. We must ensure we do not drive up house prices and the level of indebtedness as that would not serve the economy or families. We want to participate actively. I urge the committee to ensure whatever recommendations are brought forward are stress-tested and that somebody is in charge.
I thank the representatives of Banking and Payments Federation Ireland, Mr. Felix O'Regan, Mr. Noel Brett and Mr. Maurice Crowley, for their attendance and the documentation provided. I also thank them for the follow-up information to be provided in due course.