Pearse Doherty (Donegal South West, Sinn Fein)
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8. To ask the Minister for Finance if his attention has been drawn to the criticism by the IMF and others of his suggestion for a scheme for first-time buyers that would include a mortgage deposit scheme; and his plans regarding same. [28491/14]

Pearse Doherty (Donegal South West, Sinn Fein)
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A number of weeks ago the Minister gave a commitment to introduce a scheme for first-time house buyers in the Finance Bill. There was not much detail about the scheme, but it was reported at the time that officials in the Minister's Department did not think much of the plan. The plan has also been subject to criticism from quarters outside this country. The IMF referred to it and the EU Commission has not welcomed it, saying it is crucial to prevent potential effects on house prices and possible contingent liabilities for the State. Will the Minister outline the plan for this deposit insurance scheme? Does he still intend to proceed with it, given the criticism levelled at it?

Michael Noonan (Limerick City, Fine Gael)
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The Government recently launched "Construction 2020: A strategy for a renewed construction sector". The strategy includes the Government's desire for a return to sustainable levels of mortgage lending as part of a healthy housing market. This involves the consideration of measures to stimulate the development of housing. For developers to be supported, they need confidence that customers will be capable of accessing finance to purchase new builds. This means mortgage products being available to potential purchasers with an ability to support repayments. In Ireland's recent abnormal housing market, lending volumes have declined dramatically. The banks are highlighting the lack of supply of houses, in particular in urban areas, as a contributing factor for the lack of drawdown of approved mortgage facilities.  I look upon the development of this initiative as being an aid to encouraging and facilitating the supply of new homes, particularly for young families.

In other jurisdictions, such as the UK and Canada, mortgage insurance markets have been developed to support bank mortgage lending, particularly to first-time buyers. Mortgage insurance allows banks to share the risk of mortgage lending, either with the public sector or with private sector insurance companies, with the aim of increasing bank lending in general or to target groups.

I know that there has been criticism that such proposed schemes could cause house price inflation. In particular, I am aware of the criticisms that the UK scheme has received from some quarters.  As part of an economic impact assessment, my Department is undertaking research on initiatives operated not only in the UK but also in Canada, Australia and other jurisdictions, where mortgage insurance enables credit-worthy purchasers to access higher loan to value finance. My Department will consider how appropriate these schemes are in the Irish context. Any scheme introduced here will be contextualised for our current market conditions and designed to mitigate any threat of a housing bubble. As the Deputy is aware, the IMF has indicated that it would suggest significant caution in adopting a guarantee framework, especially one that would involve guarantees of a very large share of the mortgage principal. In the context of the deliberations under way in my Department, these and other views, positive and negative, will form part of the considerations.

Additional information not given on the floor of the House

As the economy recovers, any scheme I may introduce should ensure adequate availability of mortgage finance on affordable terms, particularly for first-time buyers or for people purchasing new houses. In setting up a scheme we would aim to provide the certainty needed to support greater levels of investment in new housing, with the associated benefits for the economy, for employment in the sector but also ultimately for the consumer in terms of choice and availability.

Pearse Doherty (Donegal South West, Sinn Fein)
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I take it from the Minister's reply that he is not as hot about the idea as he was when Construction 2020 was announced, when he said that this would definitely be included in the Finance Bill. I welcome that. The Government must proceed with extreme caution on this. I do not like the idea. It smacks of the type of ideas that got us into this problem in the first place. I am not saying that it would create a massive housing bubble overnight, but this, along with a number of other initiatives, could be among the ingredients that causes another housing bubble. Indeed, aside from a housing bubble, the problem is allowing people to avail of mortgages which they simply cannot sustain. It is obviously the banks' job to lend and make as much profit as possible, and if the State is going to take on some of those liabilities it makes it easier for the banks to lend. The banks' culture is already creeping back in. We have seen the advertisements from AIB telling people not to wait to get paid before they buy their tickets for Electric Picnic and other banks are saying they will pay people's stamp duty on the purchase of their house. This is already happening. Loan to value ratios are a crucial element in mortgage lending and the State moving in to increase the loan to value ratios is wrong. I urge the Minister to proceed with caution.

Michael Noonan (Limerick City, Fine Gael)
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My position has not changed since the policy document on the construction industry was published. There were 72 proposals in that document and this was one of them. It was criticised by some people who had not even read the proposal and did not understand it. They had no idea what I had in mind. However, there is nothing new about that. I heard a debate between two so-called experts on the radio last week. In respect of proposals for solving the housing crisis, one fellow wanted to put a €1,000 tax on every empty bedroom, to incentivise people to occupy them. These are crazy people who want to go out and knock on doors and find out what people are doing. The other guy wanted to apply capital gains tax to the sale of the primary home, saying this is the type of incentive the markets need. These are daft proposals. Not alone were those proposals daft, but as the interviewer was cheering them along the proposals got even dafter.

We are evaluating this. I know the risks, but I am also aware of the upside. In the United Kingdom it did not work in London because it overcooked a market that was already very hot, but outside London it added 30% to the supply of family homes. It was badly needed in the regional areas outside of London. It is not a demand-side initiative, but a supply-side one. One should think of it in that context. All we are talking about anyway is the State covering 10% or 15% of a mortgage for a limited period, to get somebody over the hump and into a house. Then they might get promoted at work after the five years or whatever is the time period we decide. It would be for first-time buyers and there would be a capital cap on it. We will return to the issue again. If I proceed, it will be announced in the Finance Bill.

Pearse Doherty (Donegal South West, Sinn Fein)
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That 10% or 15% of mortgages is a massive liability. While it will have an effect on the supply side, it could also have an effect with regard to unsustainable mortgages. It could have an additional effect when accompanied by a culture in the banks that lends to people who should not take out a mortgage in the first place. The problem is that this will be announced in the Finance Bill, when it will be done and dusted. The Minister should produce a discussion document on this issue. He talked about crazy proposals and so forth. I do not believe that language helps the debate.

Michael Noonan (Limerick City, Fine Gael)
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I think it does. Some of these people think they are gurus.

Pearse Doherty (Donegal South West, Sinn Fein)
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I do not know the two commentators the Minister referred to so I cannot judge it. We must judge things on their merits. Given the criticism of this proposal by the IMF, the EU Commission and others, including political parties on this side of the House, the Minister should produce a discussion paper. In Construction 2020 there are no details about the Minister's scheme. He has given more details on the floor of the House now than were available previously. Can he produce a discussion paper, as he has done on many other issues? He did it with regard to the BEP proposal and taxation measures. Can he produce a discussion paper outlining the Government's thinking on a mortgage insurance deposit scheme and ask for expert and, indeed, crazy opinions, should people wish to give them? At least there would be feedback from the public and from other people who might be able to test it, rather than simply announcing on the day that this is what the Government is going to do, so take it or leave it.

Michael Noonan (Limerick City, Fine Gael)
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Experts are experts, but many experts are not experts at all. They are experts in one area of activity which they have studied, and they think that gives them the right to pronounce on other areas of activity about which they know very little. Many experts in Ireland are like that. I am prepared to discuss it, perhaps at the finance committee. It is a simple idea and it either works or does not work. I will not put resources into developing a big White Paper type of arrangement as if it was a major new initiative.

If the Deputy wishes to discuss it at a meeting of the finance committee I will participate.