Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Ceann Comhairle for choosing this important topic.

We all want to see the mortgage arrears problem solved. We can all agree that one of the potential solutions for many borrowers is the split mortgage model. At the end of 2012 there were only 52 such split mortgages, but the evidence of the past couple of months is that the banks are beginning to offer split mortgages to varying degrees. We know, for example, that AIB has offered 1,400 split mortgages to its distressed borrowers in the first quarter of the current year and other banks are apparently doing the same.

The key issue I want to raise is the lack of consistency in the way in which the split mortgage model is being implemented. I refer, in particular, to the manner in which the warehoused element of the mortgage is being treated, especially the interest rate being applied to that portion of the mortgage. AIB does not charge any interest on the warehoused portion. While I do not intend this to be a Bank of Ireland bashing day, Bank of Ireland is charging full interest on the warehoused portion. As I understand it, Permanent TSB is charging 1% on the warehoused portion.

This makes an enormous difference to borrowers. If it is calculated that a distressed borrower with a mortgage of €200,000 can repay half of that mortgage, the other half is warehoused.

As part of the Bank of Ireland solution, that €100,000 will accrue interest over ten years at a rate of 4.5%, which will come to €57,000. The same customer with AIB would have no interest added to the warehoused portion, while in the case of Permanent TSB, at a rate of 1%, the figure would come to €10,500. The difference is dramatic. The point is that split mortgages are sponsored by the Government and the Central Bank, but, again, there is a distinct lack of uniformity and consistency in the manner in which they are being rolled out. If one looks at the other solutions proposed, we all know the terms “interest only”, “arrears capitalisation” and “term extension” mean the same thing across the board. It is not acceptable that, in essence, the split mortgage solution is being denied to many people through the terms and conditions attached to it. Will the Minister give a commitment to, at a minimum, raise this issue with the Central Bank and ask if it is satisfied with the manner in which the split mortgages are being rolled out? Will it ensure there is consistency and uniformity, particularly on the key issue of the interest rate applied to the warehoused portion of the mortgage?

Brian Hayes (Dublin South West, Fine Gael)
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I thank the Deputy for raising this important matter. He will be aware of the Government’s announcement on 13 March which coincided with the Central Bank’s announcement of additional measures to address mortgage arrears, including the publication of performance targets for the main mortgage banks. The objective is that 50% of distressed borrowers will have received potential solutions from the banks by the end of the year.

As the Deputy’s main point was about split mortgages, I will jump to that issue. I have been informed by the Central Bank of Ireland that the majority of lenders have introduced, or are in the process of introducing, a split mortgage arrangement. A split mortgage warehouses a part of what remains unamortised from the initial capital sum in what can be called part B of the loan. Part B is not serviced unless the borrower's financial position improves significantly in the future, in which case the split will be revised in line with the new circumstances with the provision that, to preserve incentives, only a fraction of the new resources will be applied to the loan. Also, the maximum amount that can be warehoused is dependent on each lender's own internal criteria. The split mortgage, like all other forbearance and modification arrangements, is based on affordability and sustainability of the arrangement from both the borrower's and the lender's perspective. All of the products offered by the banks have been prepared in the context of the Central Bank's mortgage arrears resolution strategy.

The banks, including those in which the State has a significant shareholding, are independent commercial entities. Decisions on the handling of their individual mortgages and other loans, including distressed loans, are solely a matter for the board and management of individual institutions in the exercise of their commercial and fiduciary responsibilities. In respect of the covered institutions, under the relationship framework agreements the Minister for Finance has with the covered banks, responsibility for commercial policy and day-to-day operations remains with the boards and management of the banks. The Minister for Finance does not have any involvement in such decisions. He has no role to play in the decisions the covered banks make on the treatment of individual loans.

We do, however, engage on the macro-policy response. The Minister for Finance recently met board representatives from the three covered institutions to receive an update on the progress each institution was making in dealing with their distressed mortgage holders. The Department of Finance is also meeting the main mortgage lenders regularly to assess their progress in addressing the banks' mortgage arrears strategies and meeting the targets set by the Central Bank in offering sustainable, long-term mortgage solutions to borrowers in difficulty. This is part of the regular ongoing engagement the Department has with the institutions as part of the overall policy response.

In summary, the Government is making significant progress to address the problem of mortgage arrears and believes the ingredients of a transparent resolution process for borrowers are now in place.

Deputy Michael McGrath has made a sensible point on how the banks deal with split mortgages. Now that we have targets in respect of these solutions, it is important there be uniformity in the way these products are rolled out. I will raise the matter with the Central Bank to see what engagement it can have with the covered institutions. It is in all our interests, particularly those with distressed mortgages, that we make progress in this area. Issues could arise if one were to create a dichotomy in the products available owing to which bank one was dealing with. It is a fair point.

Michael McGrath (Cork South Central, Fianna Fail)
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I am glad the Minister of State did not read the full reply.

Brian Hayes (Dublin South West, Fine Gael)
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I am too.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank him for getting to the point quickly. Split mortgages are a really good solution for many people with distressed mortgages. However, if one is going to hammer one group of customers with a full interest rate while others get a good deal through interest-free warehousing, we are not going to achieve the consistency and fairness we want in bringing about a resolution of the mortgage arrears crisis. I have outlined the stark difference if one warehouses a figure of €100,000 for ten years between Bank of Ireland, AIB and Permanent TSB at €57,000, 0% interest and €10,500, respectively.

In the case of the Minister’s script, it was more of the same about not getting involved in the detail. That is what has been wrong up to now. If we leave these issues to the banks’ own devices, they will not solve the problem. It is welcome that some of them are rolling out split mortgages, with AIB claiming it will reach a figure of 1,400 by the end of the first quarter. I hope a good share of customers take up this offer because it is a good one. It is welcome that the Minister will raise this specific issue with the Central Bank and I hope he will come back to me on it.

Brian Hayes (Dublin South West, Fine Gael)
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I will give a commitment to raise the issue with the bank. It is in the banks’ interests to make progress on it. If they are bringing forward solutions that will offer no support to people, we are not going to hit the ambitious and exacting targets we have set in terms of mortgage resolution. As we are so heavily involved in the banks, there is a responsibility on us to make rapid progress on the issue. Already in the first quarter between 3,000 and 4,000 split mortgages have been raised across the institutions, which is good progress. If we see that number rolled out in each quarter of the year, it will make a significant difference to the 100,000 families who are in an appalling situation and whom we are all interested in assisting.