Ciarán Lynch (Cork South Central, Labour)

I welcome the opportunity to speak on the Personal Insolvency Bill 2012. To set the debate in context, I recall knocking at the door of a house in Douglas in 2006 which was occupied by a couple. The male partner was working in the pharmaceutical industry in Cork Harbour and the female partner was a public servant. They were earning too much to qualify for affordable housing, which cost approximately €250,000 at that time, but too little to purchase a house on the open market. As I walked away from their door that evening I thought something had to give if first time buyers cannot afford to enter a housing market which depends on new buyers. One year later the then Taoiseach, Bertie Ahern, made his famous suicide comment in response to those who warned that something was going wrong in the property sector and, in another context, announced that the boom was getting boomier. We are now dealing with the bang that followed the boom.

The Bill provides a range of workable options for those in mortgage or personal debt distress and presents a real opportunity for our country to recover. Mortgage debt is a dead weight on households throughout the country and will finally be dealt with under the new legislation through personal insolvency arrangements. After meeting certain criteria, struggling homeowners will now be able to enter into arrangements with their lenders to restructure some of their debts. Options will also allow for families and individuals to remain in their own homes or downsize to an alternative home. However, the Bill does not offer blanket debt forgiveness because this would unjustly allow those who will not pay to piggyback on those who cannot.

The Bill also rebalances the relationship between borrower and lender and will ultimately ease pressure on distressed mortgage owners. Banks faced with the prospect of no payments will be incentivised to engage in a meaningful way with borrowers to their mutual long-term benefit. Over time this will help to normalise the mortgage market. I am distinguishing the concept of recovery in the housing market from what we want to see in a normalised housing market. The creation of debt relief certificates will allow for qualifying sums of unsecured debt of up to €20,000 to be written off, subject to three years of supervision. Debt settlement arrangements will also allow for the settlement of larger amounts of unsecured debt over a period of five years. The Bill provides a stick in this regard because banks which do not engage with distressed lenders in a meaningful way will face the threat of the legislation being used against them. The inclusion of secured and unsecured debt through personal insolvency arrangements places Ireland to the forefront of states that are seeking to address the devastating impact of unsustainable debt by providing for settlement arrangements of both types of debt at the same time.

This issue should not, however, be viewed in the context of a single Bill because a range of provisions are being introduced concurrently. The Minister of State at the Department of the Environment, Community and Local Government, Deputy Jan O'Sullivan, is rolling out the mortgage to rent scheme on a national basis to help families find a way out of what would otherwise be an impossible situation. This scheme, which was piloted in February 2012, allows families in severe difficulty to arrange for their home to be bought by a housing authority from the bank at the current market rate. The family can then rent the house completely unknown to neighbours or even loved ones and keep their children involved the local schools, sports clubs and activities that make their house their home and their local area their community. It could also permit families to buy back their homes over time if their economic situation improves.

The Personal Insolvency Bill is a mammoth and complex piece of legislation which runs to 150 pages. It reforms laws that have been in place for over a century and seeks to ensure that better structures are put in place for all families not only those who are in difficulty. The Labour Party has consistently promised to introduce legislation that would assist those who are struggling to pay their mortgages and deal with credit cards and other personal debts. This legislation is delivering on the promise outlined in the programme for Government.

However, it is not a blanket debt forgiveness scheme. It has been put in place for those who are making an honest effort to pay their debts but can no longer afford their repayments. A key principle of the Bill is that it is not about the size of the debt but rather the ability to service it. There is no one size fits all solution and each case will be dealt with on an individual basis. The last administration left behind an appalling legacy which saddled Irish citizens with crippling debts. After 15 years of mismanagement, we finally have radical and workable legislation to deal with the debt crisis. Those who are struggling to pay their debts can make an application through a personal insolvency practitioner who will sit down with borrowers to draw up the best plan for dealing with their debts. Regulations will also be put in place to monitor the various provisions of the legislation.

We must make sure that the mistakes of the past are not repeated. Other measures, including a house price database, are necessary to put an honest and clear valuation on houses. While this legislation seeks to correct the madness of the past we must not forget that Ireland is a home buying nation. We must normalise the housing market by putting in place proper rules for the future so people can once more buy a home without competing in a market where houses are favoured by Government policy as a commodity for investment purposes.

See this speech in context