Jerry Buttimer (Cork South Central, Fine Gael)
Link to this: Individually | In context

Question 67: To ask the Minister for Finance if he will issue guidelines to the banks for dealing with residential borrowers who are in negative equity; his views on outlining to the banks the manner in which they should deal with borrowers in negative equity who wish to sell their home and provide a time-frame to the banks within which they must consider any application for a sale from a borrower who is in negative equity. [20406/11]

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

I would like to assure the Deputy that the Government is conscious of the difficulties that many homeowners are having in meeting their mortgage repayments in respect of their principal private residence. There are a number of existing measures in place to support those homeowners struggling with their repayments. These measures include the Mortgage Interest Supplement, the Money Advice Budgeting Services, and the Central Bank of Ireland's Code of Conduct on Mortgage Arrears.

The Mortgage Interest Supplement is managed by the Department of Social Protection and provides assistance where the mortgage relates to a person's home. The Deputy will be aware of the important support provided by the Money Advice and Budgeting Services (MABS). MABS provides a national, free, confidential and independent service operating from 53 offices nationwide. I would encourage anyone who is in financial difficulty to contact their local MABS office.

The Central Bank of Ireland's Code of Conduct on Mortgage Arrears has been substantially revised to implement the recommendations of the Mortgage Arrears and Personal Debt Expert Group which published its final Report in November 2010. The Code sets out how mortgage lenders must treat borrowers in or facing mortgage arrears with due regard to the fact that each case of mortgage arrears is unique and needs to be considered on its own merits. An important recommendation of the Expert Group was that lenders would make available a Deferred Interest Scheme (DIS) to borrowers who cannot afford to pay the full interest on their mortgages but can pay at least 66% of the amount due. The borrower would have to pay the deferred interest at some agreed future date.

Lenders representing the majority of the market have already indicated their willingness to make available deferred interest schemes. These are Allied Irish Bank, AIB Mortgage Bank, Bank of Ireland, ICS Building Society, EBS, Haven Mortgages, Irish Nationwide Building Society, Permanent TSB, Springboard Mortgages and Start Mortgages. While the making available of Deferred Interest Schemes is voluntary for all lenders, those who have signed up in support of the scheme will be monitored by the Central Bank to ensure compliance.

The Expert Group on Mortgage Arrears and Personal Debt published its final Report last November. Since the publication of the Group's Report, the Central Bank has revised its Code of Conduct on Mortgage Arrears to reflect many of the Expert Group's recommendations including key recommendations relating to the introduction by all regulated lenders of a standardized Mortgage Arrears Resolution Process (MARP). It is important to point out that borrowers who are in financial difficulties, but not in arrears, are allowed to come under the MARP.

I also refer to the Deputy to the Expert Group's comments on the potential to improve the position of some mortgage holders who are in negative equity where households would be willing to trade-down. Trading down would produce a reduction in mortgage debt and more affordable monthly payments. The Group noted that "for some mortgage holders who are in negative equity, trading down would produce a reduction in mortgage debt and more affordable monthly payments. The Group recommends that further consideration should be given by lenders to facilitating trading down by borrowers in this situation. Such options would have to meet relevant prudential standards, with appropriate controls in place, and be in the customers' best interest."

Trading down involves selling a current property and buying a cheaper one. Trading down may be an option to reduce the level of mortgage repayments, resulting in more affordable monthly repayments. The Group's recommendation was aimed at helping mortgage holders remain as home owners while reducing their level of repayments. There will also be situations where mortgage holders in negative equity may wish to move home, for example, to take up new employment opportunities. There is merit in facilitating house moves by those in negative equity in certain situations and subject to certain criteria set down by the Central Bank. Ultimately, these are matters for lenders and the Central Bank to decide upon. Any lender planning to provide a negative equity type product must notify the Central Bank in advance to ensure that appropriate measures and controls are taken, as the Central Bank must be satisfied that such a product meets relevant prudential standards and does not lead to consumers being over exposed.

The Programme for Government contains a commitment to help homeowners who are facing difficulty with their mortgage repayments and the Government will examine a number of proposals in relation to this commitment. In this context, the Government Economic Management Council recently asked that further work be carried out to address the situation of over indebted mortgage holders with a view to identifying a range of responses appropriate to individual circumstances. The work concerned will be carried out by a group chaired by Mr. Declan Keane, seconded to the Department of Finance by KPMG and will report by end September.