Analysis: Tackling mortgage arrears means dealing with the banks

Government hopes its new plan will settle the crisis ahead of looming general election

The new plan is designed to improve the operation of the personal insolvency scheme by removing banks’ power of veto over a proposed solution

The new plan is designed to improve the operation of the personal insolvency scheme by removing banks’ power of veto over a proposed solution

 

The new plan to tackle the mortgage arrears problem marks a Government effort to settle the crisis in advance of the general election. As banks intensify legal pressure on defaulters, the matter is all the more urgent. But will it work?

There are two core strands to the plan. The first is an overhaul of the personal insolvency framework in which courts will be empowered to approve settlement deals which were rejected by banks.

The second is an expansion of the mortgage-to-rent scheme in which defaulters surrender ownership but continue renting the home as social tenants.

These measures are in addition to other steps to increase access to information on the options available. In liaison with the Insolvency Service of Ireland, the Money Advice and Budgeting Service will be tasked with providing assistance to defaulters. Court procedures will also be changed so officials can guide defendants towards the Insolvency Service.

In a scenario in which the holders of mortgages in arrears may fear engagement with banks, the courts and the insolvency authorities, these measures are cast to make the whole thing a little easier.

The plan calls for more “systemic” or “automatic” use by the courts of the possibility to adjourn repossessions so the defendant can consult personal insolvency practitioners. The essential aim, however, is to bring a conclusion to long-term arrears cases linked to 30,000 dwellings. This is where the issue is at its most acute.

mortgage

More than 110,000 primary home mortgages are more than one day in arrears, some 15.5 per cent of the total. Of these, almost 38,000 are in arrears for more than two years. Multiple mortgages apply to about 8,000 of these, so the net number of homes is in the region of 30,000.

That remains a big political danger as the Coalition moves towards the election campaign. As economic recovery advances, this is perceived as a “chink” in the Government’s narrative.

At issue in the coming months, therefore, is whether these new measures will speed up settlements.

Difficult territory

The new plan is designed to improve the operation of the personal insolvency scheme by removing banks’ power of veto over a proposed solution.

This will be at the discretion of the courts and borrowers must first enter a form a examinership, itself a complex task. Still, the Government says these new measures are “expected” to result in more cases being progressed to a successful conclusion via the insolvency framework.

We can but guess at the attitude in the courts, yet the very introduction of the measure weakens the power of the banks. The unspoken objective here is to introduce a new dynamic in future insolvency cases so they do not eventually reach the court.

Then there is the new mortgage-to-let plan, where participants have no financial interest in their home but can remain in residence. Participants are not threatened with the loss of their home, but take-up was low. The original plan was limited to properties with a market value of less than €220,000 in greater Dublin and €180,000 elsewhere.

The valuation threshold in Dublin has been lifted to €350,000 and larger homes will also be eligible. The valuation threshold outside Dublin will also be increased.

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