Éamon Ó Cuív (Galway West, Fianna Fail) | Oireachtas source

I support everything Deputy McGrath said. We face a huge unresolved problem with mortgages. It is a circular problem. The Government parties told the Central Bank that they wanted it solved, but they were in not position to say that if crystallising the losses on the mortgage book meant the banks needed further capital, they would put in the money. The Central Bank told the banks that it wanted the problem solved but it would not give them money and it did not want to impair their capital base while the banks are involved in various non-deals. The number of resolutions to date demonstrates that there is a paralysis in the system because they have no way of crystallising the losses if that is the way the Government wants to solve the problem. Like Liza and the bucket, there will be a hole in the bucket and they will have to return to the Government parties to try to get money, saying what they said at the beginning, which is that they have no money.

We are tinkering away at the edges of the problem but we are not up-front about the scale of the problem, which is fundamentally simple. If we do not do something to help mortgage holders, the banks will potentially face another black hole on their balance sheets because of their reckless lending. In the meantime, ordinary people up and down the country, particularly families with young children, are living a daily hell because they cannot finance day-to-day living and all their commitments, both secured and unsecured. There are approximately 750,000 mortgages in the State. Let us assume 300,000 were taken out between 2000 and 2008. A total of 143,000 are in visible trouble - that is, they are in arrears. However, of the remaining 157,000, a significant number of people are not paying credit card bills and unsecured loans, and they may be a little smarter in terms of prioritisation in realising that the mortgage is the final bill one stops paying. They are also in financial trouble but they are not in visible mortgage trouble because they have prioritised their mortgages, although they are struggling to pay.

I do not agree with the theory that everyone who borrowed during that period did so in a reckless way. The majority bought houses at the going rate because there was no choice and they bought them for genuine reasons because they wanted somewhere to rear their families. I speak exclusively of owner-occupied houses. It is simplistic to say everyone borrowed too much money according to their income or income prospects. For two public servants at an executive officer, EO, grade in 2006, it would have been reasonably prudent to borrow on the basis that in the next five to seven years – it is seven years since 2006 – one of the couple would receive a promotion and that their wages would have increased by a modest 5% to match inflation. Therefore, it would have been quite prudent at the time to borrow on that premise. What happened was that wages reduced by 17%, promotions virtually came to a halt and new taxes such as the property tax were introduced. The vast majority of those who are in trouble could not have foreseen the set of circumstances that would prevail in 2013. On the broad scale I have zero sympathy for the moral hazard argument. It does not hold water.

We must ask ourselves what we are offering 143,000 people. As Deputy Michael McGrath said, split mortgages are fantastic. However, when one splits the mortgage in two or takes off one third of it, one must be advised whether it will come back to bite one in the future in terms of whether interest will be accumulated. Split mortgages are no good, unless one parks the interest on the split part and only the capital remains as a liability.

We have between 20 and 30 houses in the mortgage-to-let category. That seems to be a very expensive solution for the State because it must give the money to a voluntary housing body to buy a house from the bank in order to let it back to the person concerned. If one were to do this on a large scale, one would have to come up with a considerable amount of money, which is not tenable.

Many years ago when we introduced the shared ownership scheme, I thought it was a great idea, as people on low incomes could buy half a house and rent the other half, while over time they could borrow the balance. They could buy a house in a housing estate of their choice, rather than seeking social housing. Anyone who ever dealt with the scheme would say it worked out to be a bureaucratic and legal nightmare. There were also incredible delays in obtaining such houses. I do not believe it is a practical solution.

We must examine whether there is another way. The 20,000 to 30,000 people who are in irrevocable difficulty must be dealt with on a once-off basis. The personal insolvency system is required. The Fianna Fáil Party has stated time and again that if the banks have a veto, one is creating a system that cannot work. If one tries to deal with 143,000 people through such a system, one will have the initial proposal made fairly quickly, but it will be months before the person who has the mortgage and the various credit institutions, including banks, come to a conclusion. The negotiations will be endless and it will be like all of the other schemes. The State is awash with bureaucratic delays.

A presentation was made recently to Members by the Phoenix Project. It proposes a different but simple solution that works on the premise that the average person who bought a house between 2000 and 2008 paid 50% more than they would pay if they bought their house now. The proposal is that for the next five years while we reboot the economy, we should increase tax relief at source, TRS, and in one fell swoop - at a cost of €300 million a year which one could take out of the great bounty received because of the deal done on the promissory note - one would deal with the people who are in severe difficulty but repaying their mortgage and allow them to live again. The people who are paying interest only could pay interest and capital. Those who are between 20 and 40 days in arrears could catch up. People who are 90 days in arrears could at least pay the interest and stop the arrears accumulating on it. That would allow us to deal with the problem in a non-bureaucratic way and the underbelly of people with severe problems who require a more complicated resolution could be addressed on a one-to-one basis in the way outlined by Deputy Michael McGrath.

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