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

I commend Deputy Donnelly and his colleagues in the Technical Group on proposing this motion, which gives us another opportunity to debate the issue of mortgage arrears and the barriers to sustainable solutions. This is a balanced motion and while I would change some words here or there, I fully agree with its broad thrust. It is timely that we are debating this issue as we await the Government's announcement of a package of measures to deal with mortgage arrears.

The motion correctly highlights the lack of financial expertise and legal representation available to borrowers. When I am contacted by constituents and other people from all over the country about mortgage arrears, they are usually unaware of the information helpline or of their entitlement to advice from an accountant when an offer is made by a bank. That issue must be addressed in the Government's forthcoming package of measures. Not only are people generally aware of their rights, these rights are too limited. When banks have endless resources to put forward solutions, we need to ensure that borrowers also have access to financial expertise and legal advice, as well as legal representation where necessary.

There is a lack of consistency in the offers being made by financial institutions. Deputy Donnelly has highlighted this issue on a number of occasions. I have experience of these cases, having gone through the standard financial statement form with borrowers and dealt with the banks. Sometimes I cannot understand the reason for banks' approaches. I have observed proper restructuring arrangements in some cases and entirely different approach to others even though the facts appear to be similar. The Central Bank should be more prescriptive in defining the elements of a sustainable solution and the circumstances to which they would apply. The key requirement in the mortgage arrears target programme is that the bank must be satisfied that it is proposing a sustainable solution. It is up to the bank to decide whether, for example, a split mortgage with interest on the warehouse portion is a sustainable solution for a borrower. It can say it has complied with the code of conduct on mortgage arrears and the target programme, and there is nowhere for the borrower to turn. Sustainable solutions should be defined from the point of view of the borrower.

The issues arising in respect of the Insolvency Service of Ireland have been extensively discussed. I hope the Government's reform of the service is as radical as necessary because while the numbers are improving, they are not coming anywhere close to meeting the Government's expectations, let alone meeting the needs of borrowers. It should be empowered as an independent agency to make the final decision on the restructuring of secured debt. That would require a complete removal of the banks' veto. We are hearing from Government sources that the veto will be diluted in some form. We will await the details of this but the issue needs to be addressed. The number of repossessions is growing and the mortgage-to-rent scheme is hopelessly inadequate. Only 88 schemes have been completed under the scheme thus far. It is hopelessly bureaucratic and it involves too many bodies. It is a nightmare to progress an application from one stage to the next. The process will have to be reformed and streamlined if it is to become more efficient and faster. The eligibility criteria also need to be changed.

The Government rightly welcomed the reduction in the number of mortgage accounts in arrears but many of these cases are simply being reclassified as solutions that are yet to be properly tested. If an arrears capitalisation arrangement is put in place, it will be some time before it is clear whether the arrangement is sustainable. It is worrying that more than one quarter of restructuring cases involve the simple addition of all of the arrears onto the mortgage balance, spread out over the remainder of the term. The statistics indicate this is one of the least effective solutions. It has worked in only 71.3% of cases. I suspect that the figure will decline even further because many of the cases that have recently been put on arrears capitalisation will find the payment unsustainable over time. In contrast, the split mortgage arrangement is quite successful, with a success rate of almost 96%. However, it is still early days for many cases involving split mortgages. The Government and the Central Bank should intervene directly to end the practice which Bank of Ireland, in particular, is pursuing of charging interest of 2.5% on the warehoused portion of a split mortgage. Charging interest on the warehouse portion makes no sense if one is trying to separate what a borrower can repay from what he or she cannot afford. It is not fair that a customer of AIB or Permanent TSB is offered a certain treatment of a split mortgage solution endorsed by the Central Bank whereas a customer of Bank of Ireland is given an entirely different treatment of that same solution.

This is inconsistent and will result in unsustainable restructuring being put in place for some mortgages. The sweetest working solutions must be enhanced, their terms streamlined and there must be greater consistency in their application. We also need certainty in regard to residual debt, because this is one of the barriers for some people in regard to acknowledging the inevitable. I accept that some mortgages are completely unsustainable. However, in all cases where a solution is agreed with the borrower that involves the loss of ownership of the home, the treatment of the residual debt should be agreed up front.

I wish to touch on some other issues relevant to this debate. One of these is the fact we are in a low interest rate environment from which thousands of tracker customers are benefitting. The mortgage arrears situation would be far worse if we had an environment of high ECB interest rates. The current ECB rate of 0.05% will not last forever, although it will probably last for some time yet. However, this will not continue indefinitely. We need to factor this into how we plan to deal with the mortgage arrears situation.

The standard variable rate issue contributes to the level of mortgage arrears. The fact people are paying from 4% to 4.5% in interest is an issue which has been well ventilated in this House and at the Joint Committee on Finance, Public Expenditure and Reform. This is directly contributing to the high level of mortgage arrears we have and any solution must address this. It is little remarked upon that mortgage interest relief is due to end completely at the end of 2017. Currently, this provides tax relief of approximately €250 million per annum to approximately 500,000 mortgage holders. When this relief ends, people will see a net increase in their monthly mortgage repayments. We need to deal with this issue.

In its reform of the mortgage to rent scheme, the Government urgently needs to extend the tenancy protection service which operates between Threshold and the Department of Social Protection for those who are renting. The protection scheme exists currently in Cork and Dublin. I know of cases where it has worked and I wish it well. However, the scheme needs to be extended to other cities and major urban areas. I am sure the Minister of State is aware from his own city of Waterford that rent caps have been far outstripped by market rents. This is the case in Cork by a country mile, where a couple with two kids is expected to find a property with a rent of no greater than €725 per month. The truth is they would be doing very well to find a property for even €1,000 or €1,100 in the urban areas, not just in the city but in the satellite towns around Cork city.

I noted what Deputy Cannon said on the issue of repossessions. It is not often recognised that for every home repossessed by way of a court order, a further three family homes are lost by way of voluntary sale or surrender. Therefore, it is grossly inadequate and inaccurate to use the yardstick of repossessions by court order as the measure of the loss of family homes. The statistics from last year give a ratio of 3:1 of homes that were lost through voluntary surrender, abandonment or through a voluntary sale as opposed to through a court order. This issue should be highlighted.

The Opposition is not exaggerating this problem. The recent report from the Central Bank on the mortgage arrears targets programme confirms in black white, in table 2 of the report, that of the solutions proposed by the banks, the loss of ownership would be the outcome in 30,904 cases. The report stated that in respect of family homes, principal private dwellings, there were 16,683 concluded solutions. I know this does not equate to properties that have been repossessed, but it is a statement of intent. It is clear that where the banks arrive at that conclusion and unless there is a radical change, these homes will be lost. One of the major flaws in the mortgage arrears targets programme brought forward by the Government was allowing the banks to use the threat of legal action or the initiation of legal action as counting towards the sustainable solution targets. This made a mockery of the entire process and should be changed.

An issue that is rarely mentioned is the issue of buy-to-let property, where the level of arrears is much higher at 25%. For obvious reasons, there is little political appetite to discuss the situation of arrears in this sector. However, this issue has a direct impact on the rental market, because if we do not put sustainable solutions in place for buy-to-let properties, many of those properties will be foreclosed upon by the banks and sold. In the current environment, those properties are more likely to be bought by owner occupiers than by investors, thereby putting a further squeeze on a rental market that is already out of control. It is in the interests of the economy and society that sustainable solutions are put in place in respect of these properties.

On the issue of family home mortgages and their restructuring, it is interesting that the Central Bank breakdown of solutions shows no heading for write-downs, but this is a solution that should be used. A variety of solutions are being put forward under mortgage-to-lease and other headings, but I suggest the banks have been well capitalised by the State and by two successive Governments and that they have adequate capital, as has been confirmed independently by the ECB, to deal with the mortgage arrears crisis. They need to deal with the issue and need to do so by putting in place the solutions that have been confirmed by the Central Bank, including split mortgages and the write-down of mortgage debt. There should be no need for a second round of transfers from the State to the banks, either directly or indirectly, to deal with mortgage arrears. They have more than adequate capital and it is about time they stepped up to the mark and dealt with the issue.

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