My Department has recently commenced the collation of data from local authorities on the number of loans in arrears broken down by the length of time in arrears. The data from the second quarter of 2012 indicate that 6,280, or 28% of all local authority mortgages, including those drawn down for the purpose of purchasing houses under the various affordable housing schemes such as shared ownership and tenant purchase, are in arrears of more than 90 days.
The use of 90 days as a comparative metric in considering the level of arrears is consistent with the approach adopted by the Central Bank in compiling information in respect of private lenders' loans. The Central Bank's data for the same period showed that 10.9% of mortgages in the private sector, including those whose accounts were restructured, were in arrears for more than 90 days. A further 5.28% of mortgage accounts had been restructured and were performing in accordance with the revised terms.
It is to be expected that the rate of arrears among local authority mortgage holders would be higher than the rate of arrears generally, given the position of local authorities as lenders of last resort.
Section 34 of the Housing (Miscellaneous Provisions) Act 2009 provides local authorities with powers to deal flexibly with distressed borrowers, and they have demonstrated sensitivity over the years in dealing with such cases. In March 2010 my Department issued guidelines to local authorities, based on the Central Bank's first code of conduct on mortgage arrears, which continued the tradition of handling arrears in a manner sympathetic to the needs of households, while also protecting the position of the local authority concerned. To reflect the content of the Central Bank's revised code of conduct, which replaced the previous code from 1 January 2011 and was informed by the deliberations of the expert group on mortgage arrears and personal debt, my Department issued updated guidance in July 2012 to local authorities in consultation with the County and City Managers' Association. This will further enable local authorities to provide a range of flexible repayment options for households in difficulty.
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In particular, the introduction of a mortgage arrears resolution process, MARP, which closely mirrors the suite of options available in the commercial sector, will present borrowers in difficulty with a range of alternative payment arrangements that can be accessed to ease the particular circumstances of each case. This process will feature a standard set of options including, in cases of certain unsustainable mortgages, a mortgage-to-rent facility. Local authorities have been restructuring loans for some time using their own internal practices. The introduction of these revised guidelines will standardise the approach across the whole sector, introduce a systematic structure and provide borrowers with a transparent and accessible model for arrears resolution.
With regard to the shared ownership scheme specifically, the rent charged on the local authority's equity in a shared ownership transaction is to cover the funding costs to the Housing Finance Agency which are based on borrowings at the prevailing interest rates. Any difference between the rent and prevailing interest rate is reflected in the capital outstanding on the property - that is, if the rent charged in any period is greater than the prevailing mortgage interest due on the local authority's share, the purchase price of the outstanding equity will be reduced accordingly.
To take account of the current housing market conditions, the Government's 2011 housing policy statement announced the standing down of all affordable housing schemes, including the shared ownership scheme, in the context of a full review of Part V of the Planning and Development Act 2000. That review is now under way and will conclude later in the year. Any future changes to legislation governing affordable housing schemes, including shared ownership, will be informed by that review.
