Responsible majority shouldn’t have to pay for irresponsible minority

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By Brendan Burgess

The majority of mortgage holders act responsibly and pay their mortgages. A few are still in arrears, but they are doing their best to pay their mortgage.

These responsible borrowers are paying the highest mortgage rates in the eurozone, because they are paying not just their own mortgage, but they are also paying the mortgages of the 20,000 or so people who have chosen not to pay their mortgages.

It’s time for the Government to take action to stop the responsible majority from being forced to pay the mortgages of the irresponsible minority.

Here are a few steps the Government could take which would reduce the arrears and make it unnecessary for the lenders to sell their mortgages to vulture funds.

First, the Government should speed up repossessions of family homes where the borrowers have paid nothing in years. If we won’t allow repossessions, we should not complain that we still have 25,000 people in deep arrears and we should not criticise Permanent tsb and Ulster Bank for selling loans to vulture funds.

Borrowers in difficulty have been shown enormous forbearance over the past 10 years. Most have responded well to this and have agreed a restructuring with their lender. But we should call time on the remainder.

If people have paid little or nothing on their mortgage in over two years, the lender should be able to fast-track the repossession process. We should make it clear to these borrowers that non-payment will no longer be tolerated.

In particular, it is a national scandal that we have around 11,000 buy-to-let properties in arrears over two years. In the current market, these landlords are getting huge rents which in many cases would cover their entire mortgage payments.

Yet, the legal system is so complex and the courts are so lenient that it’s very difficult for the banks to repossess these properties.

Second, the Government should increase the protection for those who despite genuinely doing their best, are still in arrears. Lenders should be banned from taking legal action when the borrower is paying at least the full interest on their mortgage.

If a borrower is paying the full interest on their mortgage, the balance owing to the lender is not increasing. The mortgage is profitable for the bank and sustainable for the borrower.

But lenders are forced to classify such profitable sustainable loans as non-performing due to outdated Central Bank and ECB rules on the classification of non-performing loans.

Lenders should be stopped from initiating legal action against any borrower who is paying the full interest on their mortgage, unless the lender can show that the borrower can afford to make higher payments.

Third, for those who genuinely can’t meet their mortgage payments, the Government should bring back the Mortgage Interest Supplement scheme.

Take, for example, a family home worth €200,000 with a mortgage of €200,000. A borrower in trouble with this mortgage will not qualify for any government help with the mortgage interest of €6,000.

Yet, if the borrower sells the house to a private landlord who rents it back to him at €18,000 a year, the State will happily subsidise his rent through the HAP or rent supplement scheme. This makes absolutely no financial or other sense.

It would be much cheaper for the Government to pay the interest on the mortgage than to pay rent to a new landlord. Why do we spend €1.5bn a year helping those who can’t afford their rent while paying nothing at all to those who genuinely can’t afford their mortgage interest?

The mortgage interest supplement is much cheaper for the taxpayer than the mortgage to rent scheme and much easier to set up and administer than mortgage to rent. And if the borrower has a cheap tracker mortgage, the cost to the Government will be even lower again.

One of the objections to the old mortgage interest supplement scheme was that it was only a short-term solution. But rent supplement and housing assistance payment and social housing are provided on a long-term basis.

Why should mortgage interest supplement not be paid on a long-term basis? And why not do as they are doing in the UK and make the mortgage interest supplement a loan secured on the property? In that way, when the home is eventually sold, the Exchequer will have the mortgage interest supplement refunded.

In summary, the Government should stop the lenders from taking legal action against those who are paying at least the interest on their mortgage while allowing the lenders to fast-track repossessions against those who are paying nothing.

If they did this, we would have no need for vulture funds.

Brendan Burgess is a consumer advocate and founder of the forum He was a member of the Government’s Expert Group on Mortgage Arrears. This article appeared in the Sunday Independent on 11 March 2018.