THE GOVERNMENT should extend the current moratorium on banks initiating legal action against homeowners who fall into arrears from 12 to 24 months.
It should also consider introducing an equity-sharing scheme, which would enable either the State or banks to take a stake in the home of a person struggling to repay their mortgage, according to a new report on debt written by the Joint Oireachtas Committee on Social and Family Affairs.
The report, to be published next week, recommends copying a rescue scheme for homeowners set by up the Scottish government.
The mortgage to shared equity scheme in Scotland enables the state there to take a financial stake in a home “at risk” of repossession. The mortgage holder still owns the house and continues to have responsibility for maintaining it and insuring it. However, the government makes repayments to the lender, allowing the homeowner to reduce their own monthly repayments to a manageable level.
“The committee believes that this is a good approach and one that could work in this jurisdiction, whether in conjunction with the State or with the bank”, concludes the report, which warns high levels of debt are causing serious problems for people today.
The report charts the sharp rise in personal indebtedness in the Republic over the past decade as people binged on cheap credit and easy access to mortgages. Mortgage debt increased at three times the annual rate in the EU between 2004 and 2006, and personal credit as a percentage of disposable income rose to 175 per cent in 2007, up from 60 per cent in 1997.
“It is quite clear that there was a deep failure in regulation of lending prior to the introduction of the statutory consumer protection code in July 2007,” says the report, which recommends consumers should not take all the blame for spiralling debt levels.
"Where lending has been reckless, all responsibility should not rest with the borrower but liability should be proportioned to the financial institutions and, if necessary, the broker that arranged the loan," says the report, entitled High Levels of Indebtedness in Irish Society.
In light of this, the committee recommends extending the current moratorium preventing financial institutions from taking legal action against mortgage holders in arrears to 24 months. It says it understands Government fears that this could impact the funding position of banks but concludes the “potential” reaction among bondholders to providing alternatives to repossession should not prevent action.
The committee recommends the Government begin work immediately with the banks to devise a form of financial guarantee to protect the banks’ funding position to extend the moratorium.
The report says EBS chief executive Fergus Murphy told the committee this scheme was workable. It praises EBS for not charging penalty interest on mortgage arrears and recommends that this practice should be banned.
The committee’s report is likely to be scrutinised by a panel of external experts being set up by the Government to advise on the best way to deal with people failing to meet mortgage repayments.
Fine Gael TD Olwyn Enright, who helped write the report, said it was critical the Government moved fast to help hard-pressed homeowners. “People are losing their homes while the Government dithers,” she said.
The Financial Regulator disclosed in December that more than 26,000 homeowners are in mortgage arrears for at least three months, almost double the number recorded over a year ago.
The report says the Money, Advice and Budgeting Service (Mabs) has raised “significant concern” at the number of people who want advice on handing back the keys to their own home.
The report also highlights the average debt owed on a personal loan was €13,000 in 2009, up from €9,706 in 2006. The average credit card debt rose to €8,009 from €3,833 in the same period.
It recommends the development of an alternative dispute resolution so that borrowers can avoid the costly and intimidating adversarial court system.