Prices as measured by the consumer price Index (CPI) fell by 4.5% in 2009 compared with the previous year while the harmonised European measure (HICP) fell by 1.7% over the same period.
ECB rates are now at historic lows and there is broad consensus that they will rise at some stage. When this happens there will be an impact on the CPI but not on the HICP as the latter excludes mortgage interest costs. Irrespective of changes in policy rates, some increase in market lending rates is occurring — again this will impact on the CPI but not on the HICP. My Department expects a second year of falling prices in 2010, with the CPI falling by 0.8% and the HICP falling by 1.2%. This is in line with consensus too. However we expect low, but positive inflation to resume in 2011 and subsequent years.
I am also aware of the broader impact of interest rate increases. The Stability Programme Update submitted to the European Commission with budget 2010 included an outline of the major risks to the forecasts underpinning the budget. This included a quantification of the impact on the macroeconomic outlook of a change in interest rates.
The Government is conscious of the high value Irish people place on home ownership and has committed under the renewed programme for Government to introduce new measures to protect families having difficulties with their home mortgage payments.
Since then the Government decided that all relevant material on the matter of indebtedness and mortgage arrears in Departments should be brought together in consideration of the debt problems faced by some householders. I approved the setting up of an interdepartmental mortgage arrears review group, chaired by my Department, for the purpose of collecting information and examining options, including initiatives in other jurisdictions, in relation to the matter of mortgage arrears and repossessions. This group has met on a number of occasions. Consultations are being arranged with various interested bodies with expertise in the area of mortgage arrears and related matters. Once this has happened the group will be in a position to consider and bring forward feasible options for dealing with these matters.
This work will build on existing Government supported solutions for dealing with home owners with mortgage arrears including: application of the new code of conduct on mortgage arrears which applies to all mortgage lenders; support from the mortgage interest scheme under the supplementary welfare allowance system which is providing vital support for over 15,000 families with mortgage difficulties; and the provision of advice on debt management through the Money Advice and Budgeting Service (MABS). A separate review under the control of my colleague the Minister for Social and Family Affairs of the mortgage interest scheme is near completion and it is expected that its recommendations will be taken into account by the interdepartmental mortgage arrears review group.
Since my budget speech, I have written to the Financial Regulator requesting that consideration be given to extending the moratorium on mortgage arrears from six months to 12 months for all mortgage lenders. Also in that speech I mentioned that the Government refocused mortgage interest relief on those who bought their homes at the peak of the market, many of whom find themselves in negative equity. Where homeowners entitlement to mortgage interest relief would expire in 2010 or after, they will now continue to receive it up to the end of 2017.
In relation to the position of mortgage holders generally, the Irish Bankers Federation published a statement of intent on 10 November which provides further reassurance to homeowners who find themselves genuinely unable to maintain mortgage repayments on their principal private residence. The statement of intent has been agreed and supported by all IBF members and is a welcome development. It is also welcome that the IBF oversight committee on the implementation of the statement of intent will include representation from MABS.
