Michael McGrath (Cork South Central, Fianna Fail)
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Question 73: To ask the Minister for Finance his views on whether the availability of negative equity mortgages would be of benefit to both consumers and the wider economy; and if he will make a statement on the matter. [13435/12]

Michael Noonan (Limerick City, Fine Gael)
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The Central Bank has advised me that they wrote to all mortgage lenders in 2010 to ascertain whether they were offering, or intended to offer, a mortgage product that would allow home owners to sell their existing home and transfer the negative equity portion of the original loan to the new loan. In order to ensure that proposals in relation to such mortgages are consistent with the Central Bank's consumer protection and prudential policy objectives, the proposed criteria for any such facility would need to be agreed in advance between mortgage lenders and the Central Bank.

In response to the Central Bank's letter, only a small number of mortgage lenders said that they would consider offering such a facility. The Central Bank has also advised me that, following the issue of the report of the Inter-Departmental Mortgage Arrears Working Group in September 2011, which included a recommendation on trade down mortgages, several lenders have contacted the Bank with regard to offering negative equity mortgages. This includes trade-up, trade-down and trade-down where the customer is in arrears.

In light of this and the initial low level of take up in 2011, the Central Bank has reviewed some of its criteria for negative equity mortgages and recently communicated this revision to the main lenders. While the provision of negative equity mortgages will facilitate people moving homes and generate transactions in the housing market it is not expected that these would be a large take up of this product. It still remains that any institution offering such a mortgage facility may do so only in accordance with criteria set out by and with the prior approval of the Central Bank.

The Deputy may be aware of the speech given by the Deputy Governor of the Central Bank to the Harvard Business School Alumni Club of Ireland last Friday in which he stated that negative equity mortgages do pose consumer protection issues, as such mortgages may involve a home owner trading up to a larger home and taking on increased debt. The Deputy Governor also mentioned that the Central Bank was approached by two lenders at the end of 2010 about launching negative equity mortgages. The Central Bank agreed that these could be developed on a pilot basis, involving guidelines on affordability and the ability to service debt as well as restrictions on marketing.

In the light of the very limited take up of these mortgages, under the framework that was agreed and of the potential benefits for facilitating moves and generating transactions in the housing market, the Central Bank has decided to adapt its approach to make provision of negative equity mortgages easier. The Central Bank has set out for lenders general criteria under which the Bank will consider allowing the provision of such mortgages. All such mortgage sales must comply with the affordability and suitability provisions set out in the Consumer Protection Code. A copy of the speech referred to is available on the Central Bank's website.