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Dáil Éireann debate -
Thursday, 21 Mar 2013

Vol. 797 No. 2

Other Questions

Mortgage Arrears

Joe McHugh

Question:

6. Deputy Joe McHugh asked the Minister for Finance the numbers of mortgages that were drawn down in County Donegal and in Northern Ireland which are in arrears today; if he will explain his strategy for supporting affected families' wishes to move into sustainable financial arrangements and to also remain in the family home; and if he will make a statement on the matter. [13937/13]

The Central Bank has advised me that it does not publish a geographical breakdown of its quarterly mortgage arrears statistics, nor does it publish data on the level of mortgage arrears outside of the State. The Government is very aware of the significant difficulties some home owners are facing in meeting their mortgage obligations and it has put in place a comprehensive strategy to address the arrears problem with the objective of, where possible, to allow people remain in their home.

A key element in this is real and effective engagement by lenders with their mortgage customers in arrears. As the Deputy will be aware, last week the Central Bank announced new measures to require the main banks to offer and conclude sustainable solutions tailored to individual cases. The range of solutions that can be deployed include the standard forbearance arrangements that are already used but can also extend to the more in depth restructuring arrangements as suggested in the Keane report. The Central Bank has set out specific performance targets for the number of durable solutions to be proposed by banks and will over time set targets for the conclusion and durability of such arrangements. This is a very important and necessary development in the ongoing engagement the Central Bank has with banks on their mortgage arrears resolution strategies.

It has to be accepted, however, that it will not be possible in all cases for people with the most distressed mortgages to retain an ownership interest in their home. This will not necessarily mean they will have to leave the home. The mortgage to rent scheme is available to assist families who would be eligible for social housing, and whose house is suitable for that purpose, to remain in their home. However, to be eligible for this the borrower would have to be in close contact with the lender under the mortgage arrears resolution process and his or her mortgage would have to be deemed to have been unsustainable in that process.

Personal insolvency reform was also identified by the Keane report as a key measure in addressing the mortgage arrears problem. The new Personal Insolvency Act has been put in place. In the context of the personal insolvency arrangement framework, which is the specific framework put in place by that Act to deal with unsustainable secured debt, there are certain criteria and factors that will have to be taken into account when the principal private residence is being considered. A very important factor is the onus that will be on the personal insolvency practitioner to, in so far as is reasonably practicable, formulate a proposal that will not require a person to dispose of an interest in or cease to occupy their primary home.

Also, as the Deputy will be aware, an extensive information and advice service has been put in place to assist mortgage holders, in particular when the person is considering a long-term forbearance offer from their lender.

I thank the Minister for his response. Mortgage arrears is the biggest issue in my constituency of Kildare South and the most common problem raised at my clinics. The Minister is well aware of the great distress mortgage arrears have on individuals and families as they try to cope with changing financial circumstances. The Government has stated the banks must propose sustainable mortgage solutions for distressed borrowers. This week, I have been contacted by two constituents who received letters from their respective banks blankly stating that the options open to them were voluntary sale or voluntary surrender. We must force the banks to be more creative instead of availing of the easy option from their perspective. Will the Central Bank do more to ensure the banks propose creative solutions? The mortgage to rent scheme has the potential to be a highly effective tool. What steps will be taken to roll out the scheme more widely in order that people are able to resolve their financial difficulties and remain in their homes?

There is no doubt that private debt is a very serious issue. It is one of the key economic and social issues in the country and a matter which we are addressing in great detail. In terms of the options available to the banks, the Keane report laid out in detail a range of options. These options serve as a menu for face to face interventions by the banks and insolvency services to apply to particular cases. I am surprised to learn that the Deputy recently encountered two cases where the letters he described were issued. I presume they were issued at the end of a process. If they were issued at the commencement of a process, the Deputy should write to the Financial Regulator, Mr. Matthew Elderfield.

I welcome the roll-out of the personal insolvency service, which is badly needed. I deal with constituents who have mortgages which they have no hope of ever repaying. The Central Bank must monitor closely how the banks engage with people in such circumstances to find a resolution that allows them to return to normal life and contribute to the local economy.

Those of us who heard the Governor of the Central Bank, Professor Patrick Honohan, state he was tearing out his hair began to tear out our own hair as we pondered what might come next. While the Minister's plan sets targets for restructuring mortgage debt, it does not define what is a fair restructuring process. The question refers to County Donegal and Deputy Heydon referred to cases in his constituency. Every Deputy could relate similar stories about people in mortgage arrears. Will the Minister establish an independent body with the ability to compel banks to act? As Sinn Féin's spokesperson on justice, I worked through the Personal Insolvency Act, which gives the banks a veto over the personal insolvency process. If we leave it to the banks to sort out the problem of mortgage arrears, they will hit the Minister's targets but the question is whether they will do so in a fair manner or whether Deputies will continue to take telephone calls from constituents such as those who contacted Deputy Heydon. Will the Minister establish an independent body?

The targets that have been set are targets for the number of solutions proposed by the banks by June, September and December, respectively. It is critical that the Central Bank sets binding targets for the conclusion of agreements with borrowers. We must move into that space because the banks will be allowed to propose sustainable solutions involving interest only repayments or having someone declared insolvent. Both these options are listed as sustainable solutions. We need targets for concluding agreements.

Much of what we have seen so far is temporary forbearance. Those of us who are trying to help people secure longer term forbearance, for example, split mortgage or mortgage to rent facilities, have found time and again that the banks are telling individual borrowers they do not qualify for a split mortgage. I had a case recently where a couple with a number of children living in a four bedroom house were told four bedroom houses do not qualify for mortgage to rent facilities. Who is making the rules? People are not being given proper reasons for being deemed ineligible for a split mortgage. Has the Central Bank issued detailed guidance to the banks on this matter or are the banks making up their own rules on how split mortgages should work? Some banks are charging full interest, while others do not charge any interest on split mortgages. There is also no consistency in the qualifying criteria for mortgage to rent facilities.

The issue I raise may be a constitutional matter. Is it possible under the Personal Insolvency Act to protect family income, while at the same time relieving mortgage holders of their debt burden and allowing them to get on with their lives, even if this may not involve protecting the family home?

To respond to Deputy Mac Lochlainn, the Personal Insolvency Act does not provide for a veto. This claim has been repeated time and again. The legislation provides for arrangements where creditors vote.

If, however, it drifts into bankruptcy, where it will go if there is no arrangement, solutions are imposed.

Deputy McGrath and his party have been looking for independence in the application of solutions. The Central Bank is independent and the new insolvency agency is independent also. It is not the Department of Finance that will be making the arrangements. They will be monitored by the Central Bank and, when things go down the legal route through the insolvency legislation, the insolvency service of Ireland under its director will sign off on the arrangements to be made.

Deputy McGrath asked about targets. The targets highlighted were percentages of offers of solutions. On the same day, Mr. Elderfield also said that, in parallel with the targets for solutions offered, he would set targets for concluding arrangements. He is on the record as having said that.

Deputy Twomey spoke about sustainability of income and keeping the family home. Every case will be dealt with separately. While cases can be put in different groups and there are several categories of cases, the director of insolvency is now drawing up guidelines as to what would be a satisfactory family income, after the arrangement. It is now built into the insolvency arrangements that they will be sufficient for a family to live on after whatever arrangement is put in place to suit their needs. In some cases people might rather hand back the keys. I have heard that said. In some cases getting out of a bad situation might be the way forward, but I am not advocating that.

Bank Debt Restructuring

Micheál Martin

Question:

7. Deputy Micheál Martin asked the Minister for Finance if he has sought to review with the troika the rate at which banks are required to deleverage such that lending to the domestic economy can be supported; and if he will make a statement on the matter. [14034/13]

As the Deputy will be aware, the Irish authorities have taken a wide range of restructuring measures to tackle the banking crisis over the past three years. The deleveraging programme set out in the financial measures programme in 2011 was an integral part of this process. By reducing the size of the banking system, deleveraging was intended to reduce bank reliance on wholesale and Central Bank funding and so help to create a clean, appropriately sized banking system able to provide new lending necessary to support economic activity in Ireland.

Specifically, the deleveraging plans agreed under the financial measures programme aimed to put in place credible, workable plans for the disposal and run-off of non-core assets to enable each bank to achieve a target loan to deposit ratio of 122.5% by the end of 2013. In order to protect the domestic economy, deleveraging was to focus on non-core assets consisting largely of international loan assets across a number of portfolios in the UK, the US and Europe and not required to service the retail, SME and corporate banking requirements of the Irish economy. The deleveraging plans also sought to pace asset disposals appropriately, in order to avoid excessive capital losses.

To date significant progress has been made. As outlined in the recently published Department of Finance annual review, both Bank of Ireland and AIB are currently on track to achieve their year-end 2013 deleveraging targets. PTSB’s programme has been largely postponed pending the EC’s decision on its restructuring plan. Total deleveraging achieved across AIB, Bank of Ireland and PTSB was €57 billion as at 31 December 2012. Deleveraging to date has been achieved within assumed discounts avoiding fire sales as planned. Remaining deleveraging is anticipated to be achieved through run-down and work-out of non-core loan books over time. I should stress that the asset disposal programmes at AIB and Bank of Ireland have largely completed.

Additional information not given on the floor of the House

Given the progress made to date by AIB and Bank of Ireland, the fact that the majority of non-core assets are not Irish assets and the fact that their asset disposal programmes have largely completed, I am comfortable that the completion of these plans is not constraining the amount of new lending available in the market.

In order to further minimise risks to domestic lending arising from the bank’s deleveraging programmes, further refinements to the deleveraging framework were agreed with the troika towards the end of last year. It was considered that the loan to deposit ratio metric had served its purpose in terms of driving non-core deleveraging and remaining deleveraging would be best achieved by a specific quantum of non-core deleverage requirement. This resulted in the banks’ deleveraging being assessed based on the existing nominal targets for disposal and run-off of non-core assets in line with the 2011 financial measures programme. This ensures excessive deleveraging of core portfolios is avoided so as not to impair the flow of credit to the domestic economy and also removed any unintended distortion to the deposit market.

The essence of this question is credit. As we know, the banks are deleveraging through the sale of their portfolios of loan assets, mainly abroad, and also by not giving out new credit. Last year, the Government set targets for credit given by the pillar banks to the SME sector. The banks say, and the Credit Review Office confirms, that they gave out €8 billion of lending last year to SMEs of which €2.5 billion was new lending to the SME sector. That same sector repaid €4.5 billion to the banks over the course of last year. Therefore, the amount of credit in circulation among SMEs last year contracted by €2 billion. Part of the reason for that, and for the banks' lack of risk appetite, is that they are striving to meet targets. They are rebuilding their balance sheets. That needs to happen. We all acknowledge that deleveraging is a requirement and that the banks need to shrink their exposure. It is, however, having an impact on the economy. The overall GDP figure for last year was quite positive, at almost 1%. The third quarter, Q3, figure showed negative growth and the fourth quarter, Q4, was absolutely flat. Part of the reason the economy is not doing better is that credit is still the main issue.

The banks are ahead of target in achieving these requirements. If there is any headroom and if the advice from the Central Bank is that easing off on achieving those targets so quickly could result in additional credit becoming available for the economy, then that is something we should look at. That is why I make this proposal.

The Government puts lending targets on the banks. For 2011 and 2012, they achieved their targets. As the Deputy says, the SME sector are also repaying loans. Both sides of the balance sheet must be taken into account.

There is a general problem with credit in the domestic economy but some of it stems from lack of demand for credit rather than lack of supply. Until confidence rebuilds we will not get stronger demand. It is improving, however. The figures to which the Deputy refers, which were published today, show the domestic economy stabilised in the last two quarters of last year. The domestic economy is beginning to grow, as well as the exporting sector. I hope this will be a better year.

We must also look at non-bank sources of credit. Approximately 65% of dollar spend in the United States economy, for example, comes from the markets in one way or another and not from bank lending. We have to move in that direction in Europe. The theme I have selected for the informal ECOFIN meeting which takes place in Dublin in April is non-bank credit, to see if we can get more credit into the economy from sources other than the banks. Already, we are making some progress on that through the European Investment Bank and the particular funds that have been put in place on a joint partnership basis by the National Pensions Reserve Fund and so on.

The problem at present is that households are trying to pay back debt, the Government is trying to reduce its overall indebtedness and the banks are trying to reduce theirs. The combination of all of that makes economic recovery much more difficult.

I accept there are a number of reasons that credit is not flowing as we would like it to. Part of it is that the banks do not have an appetite for risk and that demand is weak in an economy that is weak. However, I ask the Minister to go back and look at the definition of the targets for the banks and at the measurement of those targets. Last year, only €2.5 billion of the €8 billion credit was new lending and the same SME sector paid back €4.5 billion, so the total stock of credit available to SMEs shrank by €2 billion. Those are the hard facts, confirmed by the Credit Review Office.

Something is wrong and I am trying to get under the skin of what is going wrong and why credit is not being made available in the way we would like it to be. Deleveraging is one issue, but I ask the Minister to go back and look at the targets.

On the ending of the blanket bank guarantee, did the Government impose conditions on banks in relation to lending to SMEs? Was any quid pro quo required from the savings that would accrue to banks' balance sheets?

Has the Minister a view on the extraordinary annual salary of nearly €1 million paid to the chief executive of Bank of Ireland, which was recently published? He also receives various emoluments. Large salaries are also being paid to the Governor of the Central Bank, to other directors and to his aide-de-camp at the bank. Is it not extraordinary that a bank in which we still have a significant share and which depends on us for its stability should reward its senior staff in such a reckless and shameful fashion, given the constraints on the public sector, small businesses and families?

We accept that there needed to be some deleveraging in the banks' loan-to-deposit ratios, but the speed is impacting on the ability to get credit into the real economy. We know the State's unemployment figures.

Of the €3.5 billion in lending that AIB committed to last year, €600 million was new while the rest was refinancing. We are facing a real challenge. Has the Minister considered how to slow down the deleveraging process so that it assists the economy?

The Minister referred to markets supplying 65% of lending in America but that is not an option for an economy of our scale. Markets deal with much larger quantities and would not be interested in the small stuff.

We are all aware that much of the banks' recent lending has been in the form of refinancing rather than anything else. From personal experience, getting money out of a bank is like trying to pull teeth from a hen. Many small businesses have approached me about this matter. Irrespective of how good their business prospects, they are struggling to get any finance from the banks. The Government should ring-fence money for small businesses and control its distribution.

The best I can say is that it is a work in progress. The deleveraging is almost complete. If deleveraging was putting a brake on lending, that brake is no longer there to any extent.

We set targets for the banks. In 2011, €3 billion was sanctioned. In 2012, it was €3.5 billion. There is a €4 billion target for 2013. This is in the form of new or increased credit facilities to small to medium-sized enterprises, SMEs. Both banks have reported that they achieved their targets in 2011 and 2012. The Credit Review Office, CRO, has supported this contention. Lending targets are imposed on the banks. They must submit their lending plans to the Department of Finance and to the CRO at the beginning of each year. They must outline how they intend to achieve their lending targets. They also meet with the Department and the CRO on a quarterly basis to discuss progress. The monthly management meetings with the banks also provide a forum for the issue of SME lending to be raised by Departments. We keep the situation under constant review. I will re-examine it but we examine it every two weeks and certainly every month.

Deputy Broughan asked about the targets. They were set down and I have supplied them to him. He also asked about salaries at Bank of Ireland. When Deputy Pearse Doherty asked about this matter, we went through it in considerable detail and I do not need to go through it again.

Regarding the speed of deleveraging, the banks were ahead of target for part of the year, but they are on track now and have gone below the 122.5% level. I do not have the exact percentages, but I am sure that we will have an opportunity to supply them to Deputy Mac Lochlainn again.

There is already a great deal of market-based lending. For example, Silicon Valley Bank is operating in Ireland and has put $100 million on the table for small IT companies for start-up purposes. The National Pensions Reserve Fund, NPRF, has entered into bilateral arrangements with foreign investment funds that are specifically geared towards SMEs. Three funds of approximately €200 million each are operating. The Department of Jobs, Enterprise and Innovation is running a micro-finance scheme using a pool of money. The situation is improving and we will keep working at it, but I would like to-----

Give me its number.

Property Taxation Exemptions

Michael Healy-Rae

Question:

8. Deputy Michael Healy-Rae asked the Minister for Finance if homes affected by radon will be exempt from property tax; and if he will make a statement on the matter. [12339/13]

As I have previously advised the Deputy, I have no plans to provide for an exemption from the local property tax for properties affected by radon gas. I am advised by the Minister for the Environment, Community and Local Government that high radon levels in homes are easy to identify and, once identified, are relatively simple to fix. The testing of houses for radon is a relatively straightforward and non-invasive process. It is also inexpensive, with a test costing approximately €56. If radon levels are found to be below the national reference levels, no further action is necessary.

Where radon levels are found to be high, the installation of an active radon sump is the most common and effective remediation method. A sump can be installed within a day and with very little disruption to the house, as the work is carried out outside the house. This method can typically reduce the highest radon concentrations by 90%. An alternative approach is to increase indoor ventilation. This can reduce radon levels by up to 50% and is thus suitable for homes with up to twice the national reference level. The national radon control strategy is the most appropriate way to address the issue of radon contamination and it is not appropriate to provide exemptions from the local property tax to cater for every possible adverse circumstance, particularly one that may be capable of relatively simple remediation.

The local property tax is a self-assessment tax based on the market value of the property. In the first instance it will be a matter for the liable person to calculate the tax due based on his or her assessment of the market value of the property. The presence of radon gas would be one factor that a liable person may take into account in valuing his or her property.

The key point is the value of the house. People want to live in their houses. Given Revenue's new website, is there not a cavalier attitude to valuations? If the issue is pyrite, radon or an unfinished estate, is it not grossly unfair to be treated the same as an unaffected house? For example, the Minister for the Environment, Community and Local Government, Deputy Hogan, published SI 91 on unfinished estates. In the whole of the four Dublin local authority areas, he categorised just a single estate as being exempted from the property tax, namely, Priory Hall.

Many of the Minister's Deputies, who were sitting behind him until a few minutes ago, are very disappointed that the property tax grotesquely impinges on the east Leinster area.

I want to call the Minister to respond.

Is this not one of the problems? The Government has set the tax up with so many imponderables. Undoubtedly, it will be the red hot issue in the next general election on which the Minister's party and, sadly, my party will be thrashed.

We are not going to get into the next general election.

He is aware of the issue.

I have called the Minister. Other Deputies wish to contribute.

The tax is based on a self-assessment of the value of the property. If a house has any impairment, be it subject to flooding or a high instance of radon gas, the person assessing the value of his or her home will take it into account. If there is radon in a home and a similar house up the street does not have radon, the value should be marked down when submitting a return to Revenue. This is what Revenue has advised.

The valuations posted by Revenue on its website are for guidance purposes. They are not mandatory valuations. One of the problems experienced in introducing this property tax is the poorness of the available data. Revenue has put a great deal of data together and, generally speaking, its guidance prices are helpful, but they are not mandatory.

The Minister stated that the tax is based on a self-assessment.

If I own a house in a housing estate where some of the houses have been proven to have pyrite and I put it on the market, even though I might owe €300,000 on it, the highest offer I will get is €100,000 because potential buyers would be suspicious it might have pyrite. Nobody would buy a house at the moment in a housing estate where there is pyrite. Is it okay for me to put the value of my house at the highest offer I get, namely, €100,000 rather than the estimated value of €300,000?

Could the Minister explain why when the household charge was being calculated, more than 40,000 houses were exempt from it because the houses were in unfinished estates yet the figure has now been reduced to approximately 5,000? There has not been a dramatic amount of work done in unfinished estates in the intervening period. How did the number reduce so quickly?

On the same issue, any local councillor around the country would tell the Minister that it is a real crisis and that councils are taking a step back because of the exposure to huge financial stress in cases where developers have walked away. It is remarkable that of 770 unfinished ghost estates across the State, only 421 are exempt. That is a big difference from the situation pertaining to the household charge.

We received representations suggesting the Revenue is seeking medical documentation as well as local authority proof in cases of grants received for extensions on the basis of disability. That issue requires immediate clarification. Why would Revenue double-check? The fact the local authority has granted the application should be sufficient proof. I seek clarification from the Minister in that regard.

No such application has been entertained yet. We can raise the issue with the Revenue but it is news to me that it is happening.

Could the Minister raise the matter with Revenue?

I will. I have not heard it is happening. We will see.

In response to Deputy Wallace’s question on the house valuation, what Revenue says is that it is up to the householder to value the house and return it to Revenue. If the valuation is in its opinion honest, it will be accepted. Obviously, if an estate is one in which pyrite is present in many of the houses and that reduces the value even of houses that do not have a pyrite problem, that seems to be reasonable when one puts in a value. If any question arises, an explanation would be required. It is the same as what I said previously about houses that are subject to flooding that cannot get insurance. While they might be lovely houses to look at, they have a very low market value. The value that goes into the return is the honest opinion of what is the market value. It is only if it is totally out of line with everything else that Revenue will check it out. That is the position. Was another point raised?

I inquired about the reduction from 40,000 houses to 5,000.

There was a question about the reduction in the number of houses exempt from the tax.

The Department of the Environment, Community and Local Government came up with the exemptions. What I did in the Act – with the approval of everyone – was to exempt certain categories of house, and we exempted houses in ghost estates. It was then up to the Department of the Environment, Community and Local Government, in consultation with local authorities, to nominate the estates, which is what they have done. I am not second-guessing them. I just do not have the information.

Written Answers follow Adjournment.
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