Áine Brady (Kildare North, Fianna Fail)

I thank Deputy McEllistrim for raising this matter. As he is aware, the Government has taken a series of initiatives to ensure the financial environment is returned to the stability and security required to support the credit needs of businesses and households. One significant recent initiative was the publication of the report of the Expert Group on Mortgage Arrears and Personal Debt, chaired by Hugh Cooney, on 17 November. The report made recommendations on measures to assist in dealing with the difficulties created by mortgage arrears following on from an interim report published in July. The Government is committed to solutions that are fair and appropriate to the current circumstances of home owners. Accordingly, the Government accepted the group's recommendations and indicated a commitment to implement them without delay.

Some of the findings of the group are directly relevant to the matter raised by Deputy McEllistrim. For example, the recommendations were a balance of proposals to improve the situation for those in mortgage and personal debt difficulties and to best serve the national interest. In its research, the group found that approximately 90% of mortgage accounts are being repaid in accordance with their contracts, repossessions remain low and lender forbearance has worked well to date and the mortgage interest supplement provides an essential support for almost 18,000 borrowers. As interest is paid in full, the debt of borrowers in the scheme does not increase.

Broadly in line with the matter raised by the Deputy, the group noted that an examination of international practices suggest that Irish debt legislation needs to be modernised. With this in mind, I would like to turn to the Danish mortgage system referred to by the Deputy. The House may wish to note that the Danish mortgage system was hailed by the International Monetary Fund, IMF, in late 2006 as "highly rated" and one of the "most sophisticated" in the world. It is worth considering briefly how the Danish system actually works.

Under this system, all mortgages granted by credit institutions to home buyers in Denmark must be supported by an equivalent bond with a maturity and cash flow that matches those of the underlying loans almost perfectly. Most long-term finance in Denmark is provided through specialist mortgage institutions. Typically, borrowers who are owner occupiers can borrow up to 80% of the buying price, with repayment periods typically from ten to 30 years. The lending activities are financed through the issuing of bonds, which are sold on the open market. Every mortgage is instantly converted into a bond of the same amount and the two remain interchangeable at all times. This means that the borrower can withdraw from the mortgage not only by paying it off, but also by buying an equivalent bond at market prices. Since the value of homes and the associated mortgage bonds tend to move in the same direction, home owners should not end up with negative equity in their homes. Likewise, if home prices decline, the amount that a home owner must spend to retire his or her mortgage decreases because he or she can buy the bonds at lower prices.

Would the Danish system suit the Irish market? It is important to remember that the Irish mortgage market and the Danish mortgage system result from different historic circumstances. The standard of housing in Denmark is high, with approximately 2.6 million dwellings for a population of 5.4 million in 2005. This amounts to approximately two persons per dwelling. Owner occupied housing accounts for approximately 52% of occupied homes. The rate was constant for many years with a slight decline since 2000, in contrast with most other European countries where the rate of home ownership has continued to rise. However, Denmark has a highly developed co-operative private ownership sector. If this is included in the equation, the rate of owner occupied homes rises to approximately 60%. Co-operative private ownership means that tenants can set up private co-operatives to buy their apartment buildings from landlords who are willing to sell. Moreover, Denmark has a long history of regulating and subsidising the housing market. Most cities have rent control apartments that were built before 1991 and there are rent regulations based on subsidised non-profit housing based on cost calculations, not on market conditions or quality levels.

Without going into too much detail, there are significant differences between the Irish housing market and the development of the arrangements for financing house purchase in Ireland compared to the situation in Denmark. These differences mean there is no simple template from other countries for mortgage financing that can be translated directly into our housing market. Nevertheless, it is important that we continue to look strategically towards practices in our partner European countries and learn from their experiences. We can then refine our solutions to best meet the needs of Irish home buyers.

In this regard, I can assure the House that the Government will continue to implement the policies needed to restore the stability of the Irish banking system, thus ensuring that credit flows more easily in the market and potential home owners can get access to such credit. As Deputies will be aware, the Government has taken a number of substantial measures, including the deposit guarantee schemes, the restructuring of the financial services sector and the establishment of a new structure of financial regulation with an integrated Central Bank replacing the Central Bank and Financial Services Authority of Ireland, CBFSAI.

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