Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

2. To ask the Minister for Finance his plans to help first-time buyers access the housing market through a mortgage guarantee scheme or other measures; and his views on the Central Bank of Ireland's proposals to introduce a 20% deposit and a 3.5 times loan to income limit on mortgages. [42002/14]

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

It is telling that the Minister has refused to rule out a role for Revenue in collecting water charges. My question is on the Finance Bill and mortgages.

While the Bill contains a measure dealing with the DIRT applied to those saving to buy premises, one of the Government's major commitments was the mortgage guarantee scheme. On 27 May, the Minister stated: "I will do an economic analysis on the subject matter of the question, and if I think it can improve supply, I will take action in the Finance Bill; if I think it will not, I will not." The Central Bank issued guidelines on 20% deposits and so on, but what is the Government's policy on a mortgage guarantee? It is important that we know now so that we can feed into the Central Bank's consultation process with accurate information.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As the Deputy is aware, the Central Bank of Ireland has published a consultation paper regarding macro-prudential measures for residential mortgage lending. The measures as set out in the consultation document would place restrictions on the loan-to-value and loan-to-income ratios that banks can apply when lending for house purchases. They would apply to all lending in Ireland by regulated firms. The Central Bank has indicated that the primary objective of these measures is to increase the resilience of the banking and household sectors to the property market and to try to reduce the risk of bank credit and house price spirals developing in the future.

The specific measures proposed for principal dwelling houses are to restrict new lending to a limit of 80% of the value of the property and a maximum of three and a half times gross income. The Central Bank has also stated that banks will be able to lend, in some instances, above these thresholds. However, any lending in excess of the loan-to-value ratio must be limited to no more than 15% of the value of new loans issued and, in respect of exceeding the loan-to-income ratio, to no more than 20% of the value of new loans. Other exemptions will also be available in certain circumstances.

I recognise the Central Bank's prudential responsibility and its role in proposing measures to strengthen the financial system. As these particular measures are new proposals in an Irish context, I welcome the fact that the bank is engaging in a public consultation process on them. While there will no doubt be discussion about the precise calibration and thresholds adopted at a particular point in time, macro-prudential rules in the mortgage credit area would nevertheless send a further signal that Ireland has learned from the financial crisis and is putting the architecture in place to prevent a repeat of the crisis. While it is important that credit be available to meet necessary economic and social objectives, it will also be important to ensure that future credit extension is provided on a more sustainable basis.

The Deputy also referred to a mortgage guarantee scheme. My Department is committed under the Construction 2020 strategy to examining the concept of a mortgage insurance scheme and how it might benefit new housing completions in the market. The objective of any such scheme would be to help ensure adequate availability of mortgage finance on affordable terms for new completions, particularly for first-time buyers, as the economy recovers. Of particular interest would be the means by which such schemes could support greater levels of investment in new housing, with the associated benefits for the construction sector and, ultimately, the consumer.

To further assist the evaluation and consideration of such a measure, I recently wrote to the Chairman of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, Deputy Twomey, with a request that the committee consider the matter of mortgage insurance in an Irish context and, drawing on the experiences of other countries, prepare a report on the issue. It is considered that the committee would be a most qualified and appropriate forum to conduct such an examination.

Additionally, the Deputy will be aware that budget 2015 contains a number of measures to support a well-functioning housing market. In order to support first-time buyers in saving towards a deposit for their first homes, DIRT will be refunded in respect of savings up to a maximum of 20% of the purchase price. This measure will run until the end of 2017.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I welcome that the Minister has asked the finance committee to produce a report. As a member of that committee, I am sure it will do that work as diligently and as speedily as possible. However, we need to get to the core of the Government's position at this moment. The finance committee's reports on mortgage arrears have not been implemented. The key issue is that the Central Bank has voiced its opinion on 80% loan-to-value mortgages and asked for submissions. It is important that we know the Government's thinking on a mortgage guarantee scheme. For example, would a scheme only guarantee loans within the 80% limit or would it extend to 90%? How would defaulters be pursued? Would the Government, which would have taken on some of the risk, pursue them? What fees would be applied?

Crucially, in terms of the consultation process, we need to know the Government's position. Given the Minister's statement of 27 May, has an economic analysis been conducted by his Department? Is there any intention to introduce a mortgage guarantee measure in the Finance Bill or is it being left to the finance committee to produce a report that the Minister will consider?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There has been a great deal of concern about the lack of supply of houses, particularly in the Dublin area, in recent months. The situation has changed dramatically since many of the Deputies rightly advised me of ghost estates all over the country and an oversupply of unoccupied houses. The pendulum has swung rapidly and now there is a distinct lack of supply in the Dublin area. The Government's Construction 2020 policy raised the issue of the guarantee that is the subject matter of the Deputy's question. I committed to reviewing it and we are processing that, but events have been overtaken somewhat by the initiative of the Central Bank, acting independently, in making proposals of a prudential nature confining mortgages to 80% with some exceptions. However, we must remember that the bank is engaged in a consultative process and has not yet established its policy. Like other participants, the Department of Finance will make a submission to the Central Bank setting out our position.

In principle, the guarantee is a good idea. The best operating guarantee that I have encountered - there may be others - is the one in Canada. In simple terms, its prudential rules apply to mortgages of up to 80%, but one needs to be insured if one borrows beyond that level, with the insurance provided by the private sector. One must insure back to the first Canadian dollar - in our case, the first euro - rather than just the excess piece. I would like the all-party advice of the finance committee, because party politics should not be involved. It is a question of getting it right and ensuring that we assist purchasers, particularly first-time buyers and young couples who want to buy homes.

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
Link to this: Individually | In context | Oireachtas source

I ask Deputies to keep an eye on the clock, please.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I will. I appreciate the Minister's clarity, but can I take it that, regarding the Central Bank's consultation process on 80% loan-to-value mortgages, we should not assume it will be okay because the Government will introduce a 10% guarantee scheme to raise the ratio to 90%, as suggested in some media? We need clarity. Should we focus on the 80% ratio or will the Government come in through the back or side door to increase the ratio via a guarantee scheme? From the Minister's answer, it is clear that the latter is not the stated intention. He is saying that we should take the Central Bank's proposal at face value and decide whether 80% is an appropriate figure, because no other attempt to increase the ratio will be made by the Government. It has been suggested that the Government might do otherwise.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I would like to clarify my thinking. I have stated a number of times that I do not want our economic model to revert to a boom-and-bust one. Unlimited lending of excessive mortgages is part of the fuel that fires a boom-and-bust model. Obviously, I am in favour of initiatives that obviate that danger. I have certain views about the Central Bank's guidelines, but I will make a submission through the Department of Finance to the Central Bank, which is independent, as part of the consultation process.

In principle, I am in favour of a guarantee scheme, but it would not be a reaction to the Central Bank's guidelines. Rather, it would be separate. Had there been a guarantee scheme in recent years, people would not be in mortgage difficulty now. If they were unable to pay excessive mortgages, there would have been an insurance scheme to pick up the deficit for them. However, this should not be a State system. The private sector is active enough to provide a scheme.

Models operating elsewhere suggest that between 0.6% and 1% would be added to the interest rate to give a guarantee for large mortgages. That might be a prudent control. One would get a higher mortgage but one would pay for it through an insurance scheme. Then one would have all the benefits of the security that affords. I would genuinely like to hear the views of the Deputies opposite at a meeting of the finance committee to determine whether we can arrive at the best position. Then we will go ahead and do it.