MORTGAGE ARREARS ON family homes continue to be extremely worrying, despite talk of a recovering property market and an improving economy. Yet there seem to be very mixed messages coming from regulators, politicians and commentators on improving protections for borrowers and ensuring that such an arrears catastrophe never happens again. Many are strongly critical of recent moves in this direction from the Central Bank. What are we to make of it all?
Let’s look at some data. At the end of September 2014, some 37,484 accounts on ‘principal dwelling houses’ had been in arrears for over two years, up slightly from the previous quarter. Soberingly, this equates to 44% of all accounts in arrears over 90 days. The process of finding permanent restructuring solutions for these mortgages continues to be slow; almost 9,000 new applications to repossess family homes were brought in the first 9 months of 2014. Actual evictions are, as of yet, still quite low given the extent of the arrears problem. There is clearly a massive amount of work to be done before this arrears crisis is suitably tackled and resolved, not to mention confronting the problem of solutions for a far broader housing crisis.
Meanwhile, however, the commercial life of financial institutions and the growth in the mortgage market goes on. So too do new – and many would say belated – attempts at regulating that market effectively. The responsible body here is the Central Bank. We have seen controversy around its recent announcement that the Bank intends, in principle at least, to limit the amount that a person can borrow to purchase a family home. It wants to impose a minimum deposit of 20% of the purchase price and to limit the loan amount for a house to a maximum of 3.5 times the borrower’s gross income.
The Central Bank has in fact published a detailed document outlining its thinking on this matter, entitled ‘Macro-prudential policy for residential mortgage lending’ . It has invited submissions from all interested parties by 8 December 2014. Given the rather less than positive reaction, particularly from within the ranks of government, few might bet that the proposals will survive in their current form.
Less well known or publicised is that the European Union agreed a directive on ‘credit agreements for consumers relating to residential immovable property’ in February 2014. Already better known as the ‘Mortgage Credit Directive’, Ireland will have to transpose this EU law into domestic legislation by 21 March 2016 and the Department of Finance has already begun to shape how this will be done.
The Department held meetings with ‘stakeholders’ (including FLAC) in the first half of 2014 and in September published a Public Consultation document to seek views on how it should deal with the large number of ‘discretions’ allowed to Member States within the directive. ‘Discretions’ in this context are areas – in this case, 29 of them – where each EU Member State has ‘wriggle room’ in terms of implementing that area. However the main thrust of the Directive is to more thoroughly regulate the EU mortgage market in the wake of recent mortgage arrears crises in European countries like Spain, Greece and Ireland.
To many, this directive will seem like an obvious case of closing the stable door after the horse has bolted. But when you realise that how we implement this directive in Ireland decides the level of protection provided to future borrowers – and in turn the level of restrictions and obligations placed on lenders – you can see its potential importance. Because if there is one thing we know in Ireland, it’s that history can and does repeat itself – so we need to learn from our past mistakes.
The consumer lobby in financial services in Ireland is arguably weak; consumer rights organisations and interest groups are regularly excluded from key discussions when it comes to setting standards in a given area. Clearly the consequences of doing this –in terms of the missed opportunity to establish a realistic regime that meets the needs of all stakeholders and that offers robust protection for consumers – are negative.
From FLAC’s perspective, this consultation on the Mortgage Credit Directive is the first stage of several on the road to creating a new EU-driven law on mortgage lending in Ireland. It is worth mentioning that this particular law allows our government to put in place stronger consumer protection measures than the directive itself provides for. Can we hope that on this occasion, the State will put the interests of its people above commercial and other concerns and provide us with strong consumer protection standards?
Paul Joyce is Senior Policy Analyst with FLAC (Free Legal Advice Centres). FLAC provides free basic legal information via its confidential phone line at 1890 350 250 and you can get free legal advice from a volunteer lawyer at centres nationwide – www.flac.ie/help for details.
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