We are penalising homeowners at every turn, says ISABEL MORTON

I HEARD somebody on Marian Finucane’s radio programme last Sunday morning whining on about David McWilliams’s piece in the Sunday Business Post, saying how “unhelpful” it was that the economist was advocating the printing of money to aid personal debt relief.

I could hardly wait to find out what McWilliams was suggesting but whatever it was, the notion of printing off a few billion or trillion or whatever is required to sort out our problems, seemed like a great idea.

Hearing that the suggestion was unhelpful – I immediately suspected it was a brilliant idea but that it mightn’t particularly suit the powers-that-be for whatever reason.

After all, if it were a bad idea, then, with good argument and rhetoric, it would have been cut to ribbons and made look foolish but when it was repeatedly described as unhelpful, it struck me that it might perhaps, be an ingenious plan.

Basically, McWilliams outlined that debt begets debt and is compounded by the drag on recovery caused by the debt-to-income ratio and the fall in asset prices.

He suggests, that to avoid the inevitable number of defaults coming down the line, we must restructure mortgages and write off a certain percentage of debt, so that the economy can get moving again.

But, more importantly, McWilliams told us that the Central Bank could fund this quite simply, by printing more money, just as it did when the Government gave it a promissory note for Anglo Irish Bank. It accepted the Government’s IOU and started the print run.

Apparently, the European Central Bank doesn’t want us to know that the reason Europe is out of control is because of something called “emergency lending assistance” – which basically means, that each euro zone country can print as much money as it wants.

McWilliams warns those who don’t have debt and resent bailing out those who do, that the issue of moral hazard will be nothing compared with the real hazard associated with the numbers likely to default. It might be worth reminding those who feel aggrieved that they too will go down with the sinking ship unless they help with the bailout and, as a nation, we should perhaps, adopt the “New Beginning” tag line: “fairness and recovery for all”.

The voluntary organisation has, like McWilliams, come up with another version of an exit strategy, as it has been battling on behalf of distressed borrowers for some years now, conscious that ordinary citizens are bearing the full responsibility of excessive lending by financial institutions.

Banks threatened and received recapitalisation, governments enforced it by increasing taxation – but there is no such vehicle for homeowners, many of whom are sick of hearing “we-are-where-we-are” and that, they must accept the “new reality”, which is all very fine except that homeowners are the ones taking the full hit and there is no “new reality” regarding the amount they owe their banks.

Having tried all else and failed, the time has come to listen to the voices of New Beginning and David McWilliams and create this “new reality” by restructuring household debt in line with today’s lower property values?

If a percentage of the distressed borrowers’ loan was deferred for 10 years and then gradually introduced over the subsequent decade or two, the borrower would be relieved of some of the immediate financial pressure.

He would be able to service his loan comfortably, including paying off some capital, could move house if he wished and, most importantly, could start spending again.

Historically, as a nation of homeowners, we have always fought to own the roof over our own heads.

Having encouraged the practice for years, are we now going to discourage people from buying their own homes?

Recent policy appears to be going the route of penalising homeowners at every turn. Apart from the obvious difficulty in securing a mortgage these days, lending institutions refuse to lend for extensions or renovations and invariably, value the proposed purchase at considerably less than the (already much-reduced) asking price.

In addition, there are the much talked about property-related taxes, which homeowners fear will increase to exorbitant levels and the usual uncertainty over interest rates and the general economy.

But whatever about discouraging future property purchases, we still have to deal with the existing batch of homeowners, many of whom are under severe financial pressure and require some sort of reprieve.

The alternative is to continue doing what we’re doing: which, as we now know, just isn’t working. Any suggestions welcome, helpful or otherwise.

Isabel Morton is a property consultant