Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I move:

That Dáil Éireann:

notes:

— the significant fall in home ownership rates in Ireland;

— the legitimate aspiration of families to own their own home;

— that the lack of housing supply is causing distortions in the property market;

— that the dramatic increase in rents and the failure to increase rent supplement supports have put many individuals and families at serious risk of homelessness; and

— that 90,000 persons are currently on the social housing waiting lists around the country;

and

agrees that:

— action is required to improve housing affordability, particularly in respect of mortgage interest rates;

— the level of savings required should not be prohibitive thereby preventing people from buying their first properties or progressing to a second home;

— a coordinated initiative by Government and local authorities is needed to improve the supply of new housing; and

— the rent supplement scheme be urgently reviewed to take account of current rents in the market place.

At 7.23 p.m. this evening, the Central Bank of Ireland issued the new rules concerning mortgage lending. I am sure it is totally coincidental that the Private Members' motion this evening is largely focusing on that issue and other issues pertaining to the housing market and the supply of housing.

I would like to give an initial reaction to the rules the Central Bank of Ireland confirmed this evening in respect of mortgage lending. The central Bank of Ireland has gone a long way to address the concerns we and others raised in regard to the impact that a 20% rule, in terms of a deposit, would have had on first-time buyers and others. When one looks at the rule now for first-time buyers, they are required to come up with a deposit of 10% in respect of the first €220,000 of a mortgage and 20% of any balance. To put it in context, one should look at some practical examples of what that means. If a first-time buyer buys a house worth €220,000, he or she will now need to come up with a deposit of 10% or €22,000. If a first-time buyer buys a house worth €300,000, he or she will require a deposit of €38,000, or 13%.

A first-time buyer purchasing a property of €350,000 will require a deposit of €48,000 or 14%, and somebody purchasing their first property at a value of €400,000 will require a deposit of €58,000, which is 15% of the purchase price. The Central Bank has come up with a tiered approach in terms of the requirements for first-time buyers and has gone a long way to addressing the genuine concerns we and others conveyed in respect of first-time buyers and the impact the rules would have had on them. Some first-time buyers within the greater Dublin area will still be required to come up with a deposit of well in excess of 10%. For most people outside Dublin the deposit will be in the region of 10% to 12%, which is what our party advocated in our submission during the consultation phase.

One issue stands out from what the Central Bank has published tonight and that is the impact on those who are not first-time buyers. The Central Bank is holding to the requirement that a 20% deposit is required for such buyers. That would present serious difficulties for many people in that category and at first glance, having looked at the proposals in the last couple of hours, it will unfortunately result in many thousands of home owners essentially being trapped in properties that are unsuitable for their needs. That may be a young couple living in an apartment who now have children. It may be somebody who owns a home in Cork but has found a job in Dublin. As I interpret them, and this remains to be seen as more details emerge, the rules appear to me to be particularly onerous in respect of those who are not first-time buyers who in many cases will now be stuck with their current properties.

To take an example I worked out earlier, if a couple currently in a house with a value of €250,000, a mortgage of €230,000 and therefore equity of just €20,000, who now have a family and want to upgrade and buy a home of €400,000, they will be required under these rules to come up with €80,000 in respect of the new mortgage. If the equity they would have from the sale of their first home is offset, in net terms they will have to come up with an additional €60,000 in cash to buy that property. That will present very serious problems for people in that situation.

To take the example of a couple seeking to trade up to a second home, which is a situation many people will find themselves in, if they wish to trade up to a house worth €350,000 they will need to have €70,000 in cash having cleared their first mortgage with the proceeds from the sale of their home. If they have significant equity in the first home, this may well be achievable, but for many people it is not.

The Central Bank, in respect of those who are not first-time buyers, is placing an undue emphasis on the issue of the deposit percentage. The key issue for me is affordability, and that comes down to the repayment capacity of the borrowers. Do they have sufficient income to have a reasonable quality of life and make their monthly mortgage commitments based on reasonable assumptions about interest rates, potential shocks to their income and so forth? That is the key issue, and the rules that have been published tonight raise serious concerns about that.

There is one point in the Central Bank statement which needs to be clarified. It is saying that the housing loans for borrowers in negative equity who wish to obtain a mortgage for a new property are not within the scope of the loan-to-value limits and therefore presumably will not require a 20% deposit. However, if somebody is marginally in positive equity, it would appear from the statement issued tonight that they will be fully subject to the 20% rule in respect of a new mortgage they take out for a new property to which they are trading up. That sounds like an anomaly to me that I believe requires clarification from the Central Bank because if somebody has 1% or €3,000 equity in their property worth €300,000 and the mortgage is very close to the value of the home, it would appear they are fully subject to the 20% deposit rule in respect of any new mortgage they intend to take out if they are trading up, but according to the statement issued tonight, somebody in negative equity is not subject to the rule. That issue requires clarification. We want people who currently own properties but who need to trade up, move home, downsize or whatever the case may be to meet their own needs to be treated consistently.

I welcome the fact that switcher mortgages - people who are moving their mortgage from one institution to another without changing their home - will not be subject to these rules because it is in all of our interests that we have a much more competitive banking environment in respect of mortgages. It is welcome that people in this situation who are not moving home or seeking an increase in their mortgage but merely seeking a better rate from a new lender can be facilitated outside of that.

These are some initial reactions to the rules that only came out just before 7.30 tonight. Overall, I welcome the improvement in the position facing first-time buyers vis-à-visthe proposals issued originally by the Central Bank but grave concerns arise in respect of those who are not first-time buyers who have little or no equity in their property, many of whom will be unable to move. It would be a travesty if that were the outcome of the rules.

The Central Bank, having made the decision to implement these changes immediately, needs to review them within a short period because this is a fundamental change to the nature of home ownership in Ireland and to the issue of mobility, which has always been an important aspect of our housing market in that people have had the ability to move from one home to the other or to change their mortgage. That now seems to be very much impaired by these rules. I suspect the Central Bank was very much guided by the fact that arrears tend to arise more often in non-first-time buyer scenarios. That is why it is probably far more cautious in respect of that group of borrowers, but major issues arise that need to be addressed.

The Central Bank consultation process which has now concluded has taken place at a time of considerable upheaval in the housing market. Prices have been rising rapidly in Dublin in the past 18 months and, more recently, the growth in house prices has spread throughout the country. A total of just over 11,000 housing units were completed in 2014, well below the rate of household formation. It is clear, therefore, that there is pent-up demand. Many people have been waiting on developments in terms of the direction of house prices and also in regard to the rules concerning new deposit levels and loan-to-income levels, which have just been confirmed tonight.

It is little wonder that there is a spillover effect in the private rental sector. Accommodation prices have recovered to levels close to their peak and severe shortages of suitable rental units are occurring throughout the country. Conditions for first-time buyers have deteriorated in recent times and are now at their worst level for well over a decade. The abolition of mortgage interest relief in 2017 will come as a shock to existing home owners who have come to rely on the assistance it gives them in meeting the monthly mortgage bill. In fact, its abolition represents an effective €400 million tax increase, which nobody is talking about. That is an issue that warrants attention.

There is a major policy decision to be taken not just by Government but by the State. Are we in the business of supporting people who want to buy a home? Do we believe it is a legitimate aspiration for people to buy their own home if they have the financial means to do so or are we moving more towards the European model where people are entering long-term leasehold arrangements in respect of their accommodation? Our party believes that the aspiration to own one's own home is legitimate and should be supported. It is good for society if people can achieve that and it is one where policy should, wherever possible, support that objective.

Prudent lending practices and the capacity to withstand economic or property market shocks without financial upheaval are essential for our economic well-being.

When my party made its submission to the Central Bank, it sought to balance the danger that a dysfunctional housing market would pose to the long-term well-being of the economy with the widely held desire of families and individuals to purchase homes that are suitable for their needs. We said at the time that people should be supported in this respect. In the past, the policy of the State was actively directed towards assisting people in this regard, with measures like the first-time buyer's grant, mortgage interest relief, relief from capital gains tax and various other subsidies being made available. Now the policy seems to have gone to the other extreme, with a raft of planning-related levies and restrictions and the abolition of State supports for home ownership putting the aspiration beyond the reach of many people. The prospect of the implementation of the new strict rules that have been clarified tonight could be the last straw for many prospective purchasers, particularly second-time purchasers who want to buy more suitable homes.

I would like to speak briefly about my own background. My parents were living in a local authority housing estate when a grant scheme was introduced to assist people who were willing to relinquish their council houses in order to buy private homes. In the 1980s, such people were able to apply for grants of £5,000 for these purposes. Today, we seem to be disincentivising and discouraging those who want to buy their own homes. For example, the Government is dragging its feet on a new tenant purchase scheme. There are many people in local authority dwellings and social housing units around the country who would like to have an opportunity to buy their homes from the council, but are not being afforded such an opportunity. We all have constituents who are in such circumstances. Many of them are being denied the chance to buy their homes from the local authority.

I had not intended to spend so much time talking about the new Central Bank rules in my opening remarks, but they have just been published and this was an opportunity for me to give an initial reaction to them. The motion before the House is more broadly based and deals with issues pertaining to social housing, where there is a real crisis. It addresses the dysfunctional nature of the housing market, the crisis in the rental sector and the failure to reform the rent supplement scheme and bring it into line with the current prevailing market rates. My colleagues, particularly Deputy Cowen tomorrow evening, will go into more detail on these issues and on our general housing policy. I will leave it at that for now. I hope we have a good and constructive debate on this motion, which is designed to be positive. I hope that at the end of the debate, we can reach some level of consensus on what needs to be done to meet the housing needs of the general population.

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