Brian Stanley (Laois-Offaly, Sinn Fein)
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I am grateful to the Ceann Comhairle for giving me the opportunity to raise the matter of home loans acquired through local authorities to buy a house under the shared ownership scheme, the annuity scheme and the affordable housing scheme. Typically, these were, to use the awful term from America, sub-prime borrowers. They were people who could not get loans from building societies, banks or other lending institutions and they needed to be refused by two of them before a local authority would grant a loan. They applied in good faith for these loans to buy either an affordable house or a house under the shared ownership scheme or for the full annuity loan to buy 100% of the house. Many people who wanted to acquire their own home were standing on their own two feet at the time and earning reasonably good wages. There were perhaps two wages in the household. They now find themselves with no wages coming into the house and they are also caught in a negative equity trap.

The problem is escalating. Arrears are accumulating on households at a major rate. In County Laois, of 514 loans, 136 are in distress. In other words, they are three or more months in arrears. In the shared ownership section, 33% of loans are in distress, which indicates the seriousness of the problem. Families are under great pressure, which is affecting relationships. It has reached the stage where it is affecting people's mental and physical health. It is also affecting local authority staff and public representatives who are dealing with the matter. It is putting everyone under pressure and nothing short of a crisis.

Houses throughout the country are being repossessed, with the tenants being evicted and the houses often being boarded up. They are then vandalised, following which they will be sold at half or one third of the value of the original loan. If the original loan was for €280,000, a house might be sold for €80,000 or €90,000. This is leaving the local authorities and the individuals involved with a major loan hangover from the negative equity. A family then typically needs rent allowance and is put on the local authority housing waiting list which, in turn, puts pressure on the system and the family.

We are often asked for solutions. I wish to propose some solutions from this side of the House. Just as with private institutions, we need to put measures in place to deal with loans through local authorities. Burden sharing is an option, as is shared equity. A local authority could take over ownership of a house in cases where the occupier is clearly not in a position and will not be in the short or medium term to pay off the loan and rent the house to the occupier. There could be interest-only repayments. Payments could be deferred for a period or the period of the loan could be extended.

Relief could be brought immediately in the case of shared ownership scheme loans by reducing the rent on the fraction of the house being rented - typically 40% to 50%. Rents are increasing by 4% per year, which is causing major problems. Instead of reducing them or keeping them unchanged, they are increasing by 4%. This matter is under the direct control of the Minister of State.

From talking to officials, I am aware that a review group is in place and I would welcome any steps to address the problem which has been ongoing for some time. However, nothing is happening. There is no outcome or solution. What are the Minister of State and his officials doing about the issue? It is a crisis and we must address it. It is piling up on top of the local authorities and the unfortunate people living in the houses in question. The priority must be to keep them in them. Repossessions - some of which have taken place in my immediate neighbourhood - do not serve anybody. It also causes problems for the people living beside repossessed houses which are often boarded up for months on end and vandalised and consequently worth less. The unfortunate people from whom a house has been repossessed have moved to private rented accommodation and the Government which should be trying to save money is paying rent allowance for them, which is ludicrous.

Colleagues have told me about similar problems in other parts of the State; the problem it is not confined to the midlands. We need to get on top of it, as it has escalated in the past three to four years and local authority officials are at a loss to know what to do. Obviously, my first concern is for the constituents on whom this pressure has built up. However, it is also causing problems for local authorities in their balance sheets. When they go to prepare their budgets, this matter will have a major negative effect because they need to find the money to return to the Housing Finance Agency. As it stands, nobody is winning. The householder, the local authority and the taxpayer are all losing.

Willie Penrose (Longford-Westmeath, Labour)
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I thank the Deputy for raising this important matter. The Government is acutely conscious of the difficulties many households are facing in terms of mortgage arrears. Against this background, its Economic Management Council, prior to the summer recess, requested an interdepartmental group to consider further necessary actions to alleviate the increasing problem of mortgage over-indebtedness and report to it by the end of September. The outcome of the work done by the group which was chaired by the Department of Finance and comprised representatives from other relevant Departments, the Central Bank and expertise from the banking sector, has been presented to the Economic Management Council. The Minister for Finance will bring the report to the Cabinet very shortly, after which it will be published.

To date, there is no evidence to suggest wider economic circumstances are creating problems specifically for local authority borrowers in meeting mortgage repayments. The most recent published data available to me are the service indicators 2009, published in February 2011. These show the local authority mortgage arrears level running at 15.08%, a marginal increase on the level in 2008 - 11.6%. I know the Deputy has outlined his experience. A total of 16.17% of mortgage accounts in the private sector are now either in arrears for 90 days or more, or have had their mortgage restructured. This shows that despite local authorities' role as lenders of last resort, generally providing loan finance to the lowest income home buyers, the level of mortgage distress is no worse than for other higher income categories of borrower. Similarly, despite worsening economic conditions generally, repossession remains extremely rare for local authority borrowers, with only 128 repossessions across all local authority areas carried out between 2005 and 2010. Clearly, where repossession does occur it is only as a last resort, and my Department is aware that it generally involves those households in arrears who refuse to engage with the local authority lender.

Local authority borrowers have received considerable protection from the worst effects of the downturn in terms of their borrowing costs. The effective rate for borrowers has come down by 2% since the end of November 2008 and now stands at just 3.25%. These rates represent exceptional value when compared with rates charged by commercial lenders. As of now, the local authority rate is more than 1% lower than the average market variable rate.

Provisions regarding lending by local authorities for the purposes of house purchase are set out in section 11 of the Housing (Miscellaneous Provisions) Act 1992. Where a loan stands in default, section 11(10) of that Act and, more recently, section 34 of the Housing (Miscellaneous Provisions) Act 2009, provide that a local authority may make such monetary arrangements with a borrower as the authority considers equitable to take account of the particular circumstances of the borrower.

I hope that every effort is made to contact the local authority to see what compromise can be made on monetary arrangements with the borrower. I have no doubt that people like Deputy Stanley, who are in constant contact with the housing section of local authorities, would ensure this is done. Local authorities have the power to take the situation into account and to come to an agreement that is considered equitable, taking into account the particular circumstances of the borrower. I trust that most people are availing of the opportunity for discussions with the lender.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank the Minister of State for his reply. There is a problem with contacting the finance section of the local authorities. We can talk to them until the cows come home, but if someone should be paying €150 per week in mortgage repayments yet is only earning €230 per week, then that person can only pay €40 or €50. That differential of €100 is mounting up in the local authority balance sheet and on the account of the person who has taken out the loan. The room for manoeuvre for local authorities is very limited. Local authority officials in different counties tell us they have very little room to manoeuvre because it is showing up on their balance sheet. They do not have a pot that they can dig into, but a revenue account which is becoming tighter and tighter. The Minister of State knows that from dealing with other local authorities. We have to give some relief to take the pressure off both the home owner and the local authority.

I mentioned the case of local authority mortgage arrears levels in Laois and compared the three different kinds of loans, namely, the shared ownership loan, the annuity loans and the affordable housing loans. The figure is 21% in Laois, but the Minister of State's general figure is 15.08%, which means that the levels are lower in other counties across the State. I am not disputing the Minister of State's figures, which mean that one in seven local authority mortgages is in arrears, while one shared ownership loan in three is in difficulty in my county. We have to do something about this problem.

The Minister of State said that the review group report back at the end September. What is the outcome of that review? When can we see it in this Chamber? What kind of measures are being considered? Do the Minister of State and his officials understand that a sense of urgency is needed for this? We do not solve problems by putting them off. This has been put back for the past three or four years, and I thought the Minister of State would take it up when he got this job. I hope he will do so and I am taking him at his word that he will do something about it.

Surely the most important thing is to keep people in the family home. This suits no one. There are four sets of losers when people are put out of the family home: the family, their neighbours, the local authority and the Government. Does the Minister of State agree?

Willie Penrose (Longford-Westmeath, Labour)
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I certainly agree with that last point. There is only a circle of losers when that happens. I am not disputing what the Deputy has said, as he has the experience locally. The review group will be reporting in the next couple of weeks. It will be brought to Cabinet fairly soon, and will be published, so I am hopeful that will take place in the next couple of weeks.

I note the Deputy's comments on the shared ownership loans. It is going up in the rental situation, so the gap is widening. The most important piece of advice for any borrower facing difficulties and meeting repayments is to engage early and proactively with the lender to seek to achieve an agreed solution. I think Deputy Stanley might agree with me that local authorities have long led the way in dealing proactively and sympathetically with mortgages. I know that sympathy does not fill the jar, but the level of repossessions by local authorities is at the bottom of the list, although they have risen recently. They can and do exercise the powers available to them and endeavour in all arrears cases to engage proactively and constructively with a distressed borrower, with the aim of enabling a household to remain in their own home. That is the best solution if it can be achieved. If people are forced to leave their home owing to default issues, then the problem is only being transferred from one aspect of Government expenditure to another one. There is no real gain involved.

The available data suggest that repossession, where it does occur, is always a last resort. My Department issued guidelines last year based on the regulator's code of conduct on mortgage arrears to reflect the Central Bank's revised code of conduct, which replaced the previous code on 1 January 2011, and which was informed by the deliberation of the expert group on mortgage arrears and personal debt. My Department is updating guidelines to local authorities, in consultation with the city and county managers. I am hopeful these will be issued soon. That is another input, but other more significant inputs are required to alleviate the situation so adequately set out by Deputy Stanley.