Tuesday, 18 November 2014
Ceisteanna - Questions (Resumed)
Cabinet Committee Meetings
I propose to take Questions Nos. 1 to 3, inclusive, together.
The Cabinet sub-committee on mortgage arrears and credit availability last met on 29 May. In September the Government made a number of changes to Cabinet sub-committees, including the establishment of a Cabinet sub-committee on Construction 2020, housing, planning and mortgage arrears. The sub-committee has met three times to date, on 29 September, 8 October and 11 November. I anticipate that it will meet again in December.
Does the Taoiseach agree that the number of mortgages on private homes in arrears continues to be a source of very grave concern?
The Central Bank has announced that in quarter 2 about 120,000 mortgages were still in arrears, of which up to 90,000 were in arrears for over 90 days. It is worrying that in quarter 2, 1,752 private principal dwelling houses were in arrears for over 720 days, or two years. Does the Taoiseach agree that this is troubling? Behind this, there is a lot of suffering and pressure with which public representatives are familiar in visiting constituents and laying out their books. Their incomes simply will not allow them to make the necessary payments that the banks are demanding. They are living in constant fear of having their homes repossessed. In this light, should the Taoiseach not have taken my advice and that of others to have a write-down of unsustainable mortgages to affordable levels, just as the banks received a write-down on the backs of the people? By comparison, does he not feel ashamed that previous Governments in the 1970s which were right-wing year after year built 5,000, 6,000, 7,000 and in one year over 8,000 local authority homes? Is the record of the Government and its predecessor not dismal in comparison? That construction level is now needed to meet the terrible suffering as a result of the housing crisis. What will the Cabinet sub-committee do about this issue?
The situation concerning distressed mortgages has improved from what it was just a couple of years ago. The Government then had to act to provide a range of opportunities both for lenders and borrowers in order that they could sit down to work out solutions to the problem of mortgage arrears. The central principle was that the loss of a home should be the very last resort. For instance, the Government put together the Personal Insolvency Act 2012 which introduced three new forms of non-judicial debt settlement arrangement. It also reduced the automatic discharge period for bankruptcy from 12 years to three. It is complicated legislation. The Insolvency Service of Ireland has been established to regulate these new debt settlement arrangements. It opened to accept applications in September 2013. As of September 2014, there were 141 personal insolvency practitioners. They develop either debt settlement arrangements or personal insolvency arrangements, two of the new debt solutions. There are also 94 individuals who are capable of acting as approved intermediaries and can develop a debt relief notice. The Insolvency Service of Ireland has indicated that there are hundreds of cases in the pipeline which are at varying stages of verification before they can be forwarded to the court for a decision. The court may issue a protective certificate which offers debtors legal protection for a period of 70 days, during which time an arrangement between the creditors and the insolvent debtor can be put together. To date, 172 debt relief notices, 59 debt settlement arrangements and 80 personal insolvency arrangements have been approved. There is, as yet, no definitive evidence of banks vetoing proposals. There is some evidence that banks are attempting to reach agreements with their clients short of entering into a formal insolvency process. Banks are becoming more focused in their attempts to reduce their mortgage arrears books. The existence of the Insolvency Service of Ireland is helping as a catalyst in this process.
Since March 2013, the Central Bank has set quarterly targets for six banks to make offers of sustainable solutions to customers in arrears for in excess of 90 days. They are Allied Irish Banks, Bank of Ireland, permanent tsb, Ulster Bank, ACC Bank and KBC Bank. The targets for 2014 were set as 70% in quarter 1, 75% in quarter 2, 80% in quarter 3 and 85% in quarter 4. There is considerable progress being made in meeting these targets. Banks have reported that they are satisfied with all of targets up to quarter 1 in 2014. An independent audit has confirmed the banks' progress up to quarter 4 in 2013.
Following the introduction of a mortgage-to-rent scheme which facilitates families in staying in their homes by the transfer of ownership to a local authority or an approved housing body, to date, 2,465 cases have been put forward by lenders, of which some 1,437 have been progressed, while 41 cases have been fully completed. The Department has acknowledged that the number of cases remains quite low and a review of the scheme is being undertaken. This has resulted in quite a number of changes to the process with the housing agency taking a much more managerial role in the scheme. It is expected that the changes will result in more cases being processed and concluded in the not too distant future.
Another development involved a mortgage arrears information and advisory service which included a website, a helpline and an advice service. There have been 238,000 visits to the website since June 2012. Some 11,500 telephone calls have been received by the helpline. Data provided by the Central Bank for lenders from quarter 4 in 2012 to quarter 1 in 2014 indicate that there were some 27,500 long-term forbearance offers, with just under 560 invoices being received by lenders. A review of the independent financial advice service has been completed. These reforms are being progressed, including the introduction of advice at an earlier stage, in order that borrowers in negotiations with their banks will know what is available. In addition, a special rate of mortgage interest relief for first-time buyers was introduced and available from 2004 to 2008. These are some instances in which conclusions have been reached.
As Deputy Joe Higgins is well aware, it is ultimately a case of lenders sitting down with borrowers to work out a solution that, in the circumstances, is best for those with a mortgage in order that a conclusion suitable to their needs and appropriate to their circumstances can be reached. It is not fully satisfactory by any means, but it is moving very much in the right direction. At the end of the day, the principal requirement concerns the safety of the family home.
As I understand it, the Cabinet sub-committee is trying to find solutions to the problems of mortgage arrears and the lack of credit. There is not a Teachta Dála who has not had to deal with hard-pressed families who are beside themselves because they cannot afford to repay their mortgages. While some progress has been made, there has been very little in dealing with the issue of long-term mortgage arrears. Meanwhile, business people in the small and medium enterprise sector, in which about 70% of people are employed, cannot obtain the required finance. This is particularly the case for businesses which could potentially progress at this time. How does the Government deal with this matter?
In July the Joint Committee on Finance, Public Expenditure and Reform produced a good report, for which, I understand, there was cross-party support. It called for worthwhile policy changes, including, for example, the rejection of the Cental Bank's general acceptance of legal solutions as sustainable and a request for the Minister to intervene, in line with his stated views, and ensure legal letters were not regarded as satisfactory solutions.
Another recommendation made in the report was that each bank involved in the mortgage arrears resolution target process be mandated to provide all relevant customers with all available solutions as specified in the code of conduct on mortgage arrears. It is such a simple matter.
The committee called for the promised legislation on the code of conduct on mortgage arrears, CCMA, to be progressed with the utmost urgency by the Department of Finance to provide both legislative protection to homeowners and address the legal uncertainty that exists at present. These are practical suggestions, put together after consultation between the Joint Committee on Finance, Public Expenditure and Reform and homeowners, the banks and organisations working with people in mortgage distress. The Government appears to show no interest in implementing them. I am trying to figure out the role of the Cabinet sub-committee, if any, in dealing with reports like this from the Joint Committee on Finance, Public Expenditure and Reform.
With regard to credit availability, the Credit Review Office published a report recently that said there had been some progress but noted, "there continues to be a challenge in obtaining finance for those SMEs which have been distressed but are now recovering, and are viable or potentially viable – particularly those with property debt overhangs". The report speaks of market failure on the supply side. In other words, we do not have a functional credit system. Can the Taoiseach respond to these two reports, one of which is from the Credit Review Office and the other from the Oireachtas Joint Committee on Finance, Public Expenditure and Reform. Can the Taoiseach give us a sense of how he intends to progress this?
One of the big election promises was the so-called State bank, the Strategic Banking Corporation of Ireland. It is not a bank and will only lend on to banks in the hope the banks will lend to SMEs. These are the banks that are criticised by the Credit Review Office. Will the Government consider applying for a banking licence for the Strategic Banking Corporation of Ireland and give us some sense of where the Cabinet sub-committee does its work? Does the sub-committee communicate with the banks? Has the Taoiseach asked the banks whether they will take on board the recommendations of the Joint Committee on Finance, Public Expenditure and Reform or from the Credit Review Office?
Deputy Adams mentioned small and medium-size enterprises and the facilities available to them. With regard to mortgages, at the end of August 2014, which is the end of quarter 3, there were 691,434 mortgages or mortgage accounts. The total number of accounts not in arrears at the end of quarter 3 2014 was 595,319. That means the total number of mortgage accounts in arrears from one day past due date is 96,115. The total number of mortgage accounts in arrears of greater than 90 days is 67,854. The total number of mortgage accounts in arrears of 90 days or less is 28,261. With regard to mortgages in arrears of more than 90 days past due date, there were 19,811 restructures, with 14,900 permanent restructures and 4,840 temporary restructures and there were 48,443 in arrears greater than 90 days but not restructured.
The SME situation has been critical for some time. The unstructured banks that applied when the Government was elected was something that had to be dealt with, and their restructuring involved setting up two pillar banks, Bank of Ireland and AIB, and the Central Bank setting targets for them. Deputy Adams raises an important point about access to credit for SMEs, which are the back bone of the country and for which so many job opportunities rely. The Deputy is aware that the Government has put in place an Action Plan for Jobs which is followed through and monitored by the Department of the Taoiseach and the Department of Jobs, Enterprise and Innovation under the Minister, Deputy Richard Bruton. A range of measures were introduced, including the credit guarantee scheme, which will shortly be widened in scope after an external review. It was not working in the way it should have been working.
Microfinance Ireland was established to provide unsecured business loans of between €2,000 and €25,000 for commercially viable propositions that had been declined bank credit, or in other words, to give them an opportunity to get in there. The Ireland Strategic Investment Fund, ISIF, will make €7 billion of resources available to support SME funding and for investment on a commercial basis to support economic activity and employment in the country. The local enterprise offices, which were set up as a one-stop shop in local authority areas, mean that anyone seeking information on support, starting, and growing a business in Ireland have the facilities available to them. The enhancement of the Credit Review Office under Mr. Trethowan, which provides a very simple and effective review process for small and medium-size enterprises, including sole traders and farm enterprises, applies where requests for credit are refused or existing credit facilities are withdrawn or reduced. This includes increasing the limit for loan applications that can be reviewed from €500,000 to €3 million. The House is aware of the value of the Credit Review Office, which was overturned refusals by banks in over 50% of cases. It is important information for SMEs to be aware of. If they are turned down by banks, the Credit Review Office can analyse the application and has overturned a great number of decisions.
There was also the development of the online tool for supporting SMEs to establish the State supports for which they may be eligible. It is available on one site so that any retailer or SME owner can have the access to credit checked quickly and efficiently. It is popular with SMEs. The Government increased the VAT cash threshold from €1.25 million to €2 million in last year's budget.
The Strategic Banking Corporation of Ireland is an important development. I met Chancellor Merkel last year at the meeting held in Paris to deal with youth employment and unemployment. I stressed the importance of a country like Germany assisting Ireland in credit opportunities for small and medium-size enterprises. The result was that the structure of the KfW triple-A rated State bank in Germany was made available to us, with significant sums of money invested. Together with the Silicon Valley Bank, the European Investment Bank and our resources in the NTMA, we were able put on the table €800 million in secured funding. The legislation establishing the Strategic Banking Corporation of Ireland allows €5 billion to be made available to SMEs over the next five years. I expect to leverage capacity from the €800 million will make credit readily available to SMEs at longer terms and with greater flexibility than under the current structures of the banks.
In budget 2015, the Minister for Finance, Deputy Noonan, announced that Permanent TSB, which will shortly recommence actively lending to the SME sector, has agreed to participate in the Credit Review Office process. Ulster Bank is also actively considering making a similar commitment. These are important developments providing extra security, clarity and certainty to SMEs.
The Government has also made changes to the employment and investment incentive scheme, including by increasing the amount of finance that can be raised by a company to €5 million annually, subject to a lifetime maximum of €15 million.
The range of enterprises now qualifying is widened and the seed capital scheme will be launched in the coming months by the Minister, Deputy Bruton. The Departments of Finance and Jobs, Enterprise and Innovation will roll out an integrated export finance strategy in 2015, with financing products and different platforms being developed by the strategic investment bank and the Ireland Strategic Investment Fund in conjunction with Enterprise Ireland. These are important issues.
Deputy Adams is well aware of many cases in the past number of years in which investment abroad by small and medium enterprises, SMEs, has not worked out. Many of those property issues have dragged down working SMEs that have been commercially viable. There has been quite a deal of engagement with the banks in respect of those cases where a business is commercially viable but is being dragged down by purchases of property.
These are some of the issues on which the Government has focused directly with small and medium enterprises. It is a matter of listening to those voices and addressing the issues they feel are important for improving their business propositions in order that they can take on more employees, expand their remit and provide services to bigger firms in a better way. It is about enabling them to export and providing an opportunity for more people to be employed, which is an essential part - and a consequence - of having extra availability of credit.
Bhí sé sin an-suimiúl, ach níor thug an Taoiseach freagra dom faoi an strategic banking corporation. I suggested that the Government consider applying for a banking licence for the strategic banking corporation as opposed to having lending to the banks. As we all know, it has been dilatory in doing that job, particularly in providing credit for small and medium enterprises.
A number of applications have been lodged and approved for other non-mainline banking operations from corporations and so on which provide banking facilities for companies using products or equipment. As the strategic investment bank is developed and progresses, I am sure consideration will be given to the Deputy's question. It should be noted that from a greenfield plan, in fewer than 12 months, all the propositions for the strategic investment corporation were put together, signed off, sealed and delivered with €800 million on the table from 1 December. That is quite an achievement by all those who have worked and been involved in the process. The end result will be access to credit for companies that were not previously in a position to avail of that credit. It is a case of time moving along in seeing how effective this process is. Perhaps consideration can be given later to it.
In many respects that seems to indicate the lack of real action on mortgage arrears. For the past three and a half years, the Government's approach has been to leave the issue to the banks. The impact of the personal insolvency legislation has been negligible; the Taoiseach mentioned 172 cases. Despite all the elaborate debate and the creation of a large white elephant, there has been no real impact on those with mortgage arrears. There has been mention of a figure of 90,000 to 100,000 people who have been significantly in arrears for quite some time.
Many people have examined significant corporations and big businesses that are getting significant discounts on loans. For the average family in mortgage arrears, where a parent may have lost his or her job, there is no sense that anybody has dealt with them in a comprehensive or systemic way. That is a glaring reality of where we find ourselves. To a large extent, the Government took a hands-off approach to the crisis, especially with regard to the worst-hit families or those which are two years in arrears. The number of people who are more than two years in arrears is continuing to increase. Those people have not had any relief or seen significant structural changes to their debt which would allow them to contribute to the economy into the future and have a sense of certainty about their overall debt position within a reasonable timeframe. There is a combined value of approximately €8 billion of debt for families, which is of enormous social and economic significance. The Cabinet sub-committee, if we are to judge it by the frequency of its meetings, has not responded to the severity or depth of the crisis, particularly with regard to families in mortgage arrears.
There has been no attempt to free up the business side of the equation for small and medium-sized enterprises, and some SME owners have significant property debts that have brought down their business operations. Clear solutions have not emerged in that regard. I have dealt with quite a number of families with mortgage arrears and this is a large shadow in these people's lives. These families are depending very much on the goodwill of a particular bank or person in the bank and the hope that a bank will not engage too heavily. Different advice may come their way on how to respond. It has been three and a half years since the process started and it is time to get hands-on with those people who are in severe trouble. The Cabinet sub-committee on mortgage arrears and credit availability should meet far more often than it has to date.
It is an important point. Since August last year, the Department of Finance has published regular reports on what is happening here, engaged with the banks and processed that information. The figures produced in November this month, drawn from the six main banks, account for approximately 90% of the mortgage market. That information indicates that progress continues to be made. The data shows that up to September 2014, the total number of mortgage accounts in arrears - all arrears one day past the due date - is below the 100,000 mark for the first time since August 2013. The figures relating to the period up to the end of September 2014 underline the progress that has been made for private dwelling homeowners since the figures started being collected. The figures for principal dwelling houses demonstrate that the number of mortgage accounts in arrears of over 90 days and not in a restructuring arrangement has decreased from 62,210 in August 2013 to 48,043 at the end of September of this year. This means that engagement between consumers and lenders has led to an increase in permanent mortgage restructuring processes of over 32,400 since the start of the year. These are the people referred to by the Deputy; they have been under pressure and have had to live for the banks while existing for their families. In this year alone, 32,400 have reached an acceptable permanent restructuring arrangement. In 2014, there has been a drop of almost 12,000 in the number of mortgage accounts in arrears of more than 90 days, which is a relief for those people. The number of split mortgages continues to increase, with over 17,000 in place at the end of August. That results from discussions and engagement between borrowers and lenders.
Central Bank mortgage arrears statistics for the second quarter of 2014 reinforce the picture of solid improvement. For example, the number of mortgage accounts for principal dwelling houses in arrears fell for the fourth consecutive quarter, with the number of principal dwelling house mortgage accounts in arrears of more than 90 days continuing to fall during the second quarter. This represented a third consecutive decline in the number of principal dwelling house accounts in arrears over 90 days. Some 101,973 principal dwelling house mortgage accounts were classified as restructured at the end of June.
This reflects a quarter-on-quarter increase of 10.3%. Of these restructured accounts, some 81.2% were deemed to meet the terms of current restructured arrangements. It is important to note that restructured accounts can still be classified as in arrears for a trial period until the arrangement is proven to be working. The figures might be better than those given here because there is a trial period to see whether borrowers can measure up to the restructured arrangements. This is not a situation in which everyone is out of arrears with permanent restructuring arrangements, but things are heading in the right direction. We must build on the existing platforms.