Tuesday, 19 February 2013

Questions (260)

John O'Mahony


260. Deputy John O'Mahony asked the Minister for Finance if endowment mortgages will be catered for in the Personal Insolvency Bill; and if he will make a statement on the matter. [8297/13]

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Written answers (Question to Finance)

The Deputy will be aware that the Personal Insolvency Act was signed into law by the President on the 26 December 2012. The Personal Insolvency Act amends existing bankruptcy law and also introduces new frameworks for the formal consideration and possible settlement of unsustainable debt situations, including the Personal Insolvency Arrangement which will deal with secured debt, outside of formal bankruptcy. As such a debtor will be in a position to propose a Personal Insolvency Arrangement to address unsustainable mortgage debt, irrespective of the particular type of mortgage. However, strict eligibility criteria will apply before a debtor can make such a proposal to his/her creditors, including that the debtor is regarded as being insolvent. As such, a Personal Insolvency Arrangement will not be a vehicle to solely address a mortgage shortfall arising from the maturity of an endowment policy unless the debtor is overall in a position of insolvency.

Regarding the issue of endowment mortgages more generally, I have been informed by the Central Bank that where the proceeds of an endowment policy are insufficient to repay the capital element of an endowment mortgage, borrowers need ample time to make alternative repayment arrangements. In addition, borrowers are afforded the protections of the ’Code of Conduct on Mortgage Arrears’ in cases where the mortgage is in arrears or in pre-arrears and is secured by the borrower’s primary residence.

The Deputy may wish to note that, when the risks associated with endowment mortgage products were highlighted in the 1990s, specific provisions were incorporated into the Consumer Credit Act 1995 which require warnings to the effect that the proceeds of a policy may not be sufficient to repay a mortgage. Under the provisions of the Act, endowment mortgage savings plans must be reviewed by the life company at least every five years to check if the plan is on track to repay the mortgage. In this regard, a statement setting out the estimated revised valuation of the endowment policy at maturity must be issued by the insurer to the borrower. If the policy is not on track to repay the mortgage, the life company will recommend an increase in the premium.