Dáil Éireann Debate, Thursday - 5 October 2023
84. Deputy Pearse Doherty asked the Minister for Finance his views, and the Department's analysis, of the capacity and number of borrowers eligible to switch from lenders to the mainstream mortgage market under the recently published eligibility criteria published by the Banking and Payments Federation Ireland and retail banking sector; and if he will make a statement on the matter. [43138/23]
View answerOn 4 August, I called on the Minister to convene a meeting of the Central Bank and the banking sector to chart a pathway for households whose mortgages were sold to vulture funds to return to the mainstream mortgage market. That meeting took place on the last day of that month but the pathway was not outlined. Instead we had an announcement after that. Can the Minister outline the measures that were agreed, and comment on their effectiveness, given the financial pressure they are facing as interest rates soar? Can he also reflect on the fact that the vast majority of loans in the grips of vulture funds will not be able to avail of the measures that were outlined?
As the Deputy said, I met the mortgage industry on 31 August 2023. Attendees included the Banking and Payments Federation Ireland, BPFI, CEOs and senior representatives of all the main mortgage lenders and servicers, including: AIB; Bank of Ireland; Permanent TSB; Pepper; Mars Capital; Avant Money; Dilosk; and other mortgage entities. The Central Bank of Ireland also attended. The Insolvency Service of Ireland, the Citizens Information Board and the Money Advice and Budgeting Service, MABS, indicated at the meeting that, from the inquiries coming to them, there is an increasing number of borrowers who are encountering difficulty in meeting their mortgage repayments.
The Government is acutely aware that the increase in the level of interest rates, in addition to the general increase in the cost of living, is causing difficulties for many mortgage holders. I made it clear that banks and all other mortgage entities should be fully aware of the significant challenges that some of their customers are facing and, therefore, lenders and servicers should respond by assisting their customers who are experiencing difficulty. I also highlighted that greater clarity should be provided to customers on the possibility of switching provider and that this option should be fully supported by all mortgage entities, including the existing mortgage creditor, as the level of switching between firms is low. Further, I supported the steps taken by the Central Bank to ensure that firms proactively deal with emerging difficulties for their customers since the increase in interest rates. The Central Bank requires firms to enhance the range of supports available to borrowers in or facing arrears and to have sufficient operational capacity to manage applications by borrowers to switch their mortgage or mortgage provider.
Arising from that meeting, on 6 September, BPFI announced a number of further initiatives by the mortgage industry. These included a second phase of a dealing with debt campaign; mortgage servicing firms and MABS to collaborate on an expansion of streamlined customer engagement framework and the provision of initial eligibility criteria by the main lenders to provide clear guidelines for home mortgage customers of credit servicing firms who are seeking to switch their mortgage. This means that, for the first time, there is an agreed industry-wide set of eligibility criteria to facilitate people switching their mortgage from a non-bank to a bank. All the banks and some other lenders, like Avant Money, ICS Mortgages and Finance Ireland, have signed on to that set of criteria, which is a significant change and brings clarity to mortgage holders. These new measures are additional to those provided for in the existing regulatory framework. Separately, Pepper has introduced a new discounted two-year fixed rate alternative repayment arrangement, ARA, option for borrowers in arrears, which increases the range of options for Pepper customers entering into an ARA.
I would always encourage people to switch, whether they are in the hands of vulture funds or with the mainstream banks and lenders. They should always look at the option of switching if better value is available to them. I have serious reservations on the effectiveness of the measures that were announced. We know that 80,000 households have mortgage loans held by vulture funds and they have little option to switch. They have received letter after letter in the post confirming other interest rate hikes, adding hundreds if not thousands of euro to their mortgage repayments, and some of them are paying as much as 10% in interest rates.
The eligibility criteria are published by the BPFI and the banks are extremely restrictive. They require households to pay capital and interest, in full, on the outstanding mortgage, with no split or warehoused element on the mortgage. They expect your household's credit history to show a clean repayment track record, without arrears, for at least the past two years. In the Minister's analysis, how many of the 80,000 mortgage prisoners will be able to switch under these criteria?
As the Deputy knows, in total we have more than 110,000 principal dwelling home mortgages that are in the non-bank sector, and the agreement on the eligibility criteria for switching is a significant step forward. It is the first time we have such agreement in place and we have the agreement of all of the different lenders that they will operate and support those mortgage switching and eligibility criteria. That is important.
I have been engaged with the Central Bank on the question of how many customers it believes will be able to switch under the initial eligibility criteria. I know the Central Bank wrote to the Deputy directly on that question as well and confirmed that in its view, at this point in time, approximately 27,000 such mortgages could meet the criteria.
Many more can meet them in the future. When we look at the very low level of switching that is taking place and the fact that, as of today, 27,000 mortgages in the non-bank sector may well be eligible, and are eligible in the view of the Central Bank based on its initial assessment, that should be the trigger for an awful lot more switching activity than is currently taking place. I envisage that in the coming months, now that everyone knows what the criteria are, many more mortgages will become eligible and fall within the scope of the criteria that have been agreed.
I have been raising this now for a long time as households were thrown to the wolves, including by the Minister's party and Fine Gael. We now have mortgage prisoners who are facing interest rate hikes that simply do not exist in the other retail mortgage market. The Ministers were told this. My legislation, which would have prevented the sale of these loans to vulture funds, was blocked. I made it clear on Committee Stage that vulture funds would hike up interest rates. Let us look at the data that the Central Bank has given me. Only 2% of mortgage holders in mainstream banks are paying 5.5% or more. In vulture funds, on the other hand, a quarter of all loans are paying more than 5.5% and some of them are paying up to 10%. When I asked the Central Bank how many could switch before the BPFI came out with its criteria, the bank said the figure was possibly 54,000. After the BPFI came out with its criteria, the Central Bank is now saying the upper limit is 27,000 and that would be subject to other credit checks. For example, those who missed a direct debit payment in the last while would be excluded.
What was agreed after the meeting simply does not cut the mustard. There is a responsibility on those banks, and indeed on Fianna Fáil and Fine Gael which facilitated these loans being sold and people being thrown to the wolves, to facilitate a pathway back to main street lending. That would mean these loans could get out of the grips of the vulture funds and back into main street lending. We see from all of the data that even though interest rates have been increasing, they are significantly lower than what is happening with vulture funds. Does the Minister not agree that action has to be taken to right this wrong? What is the Minister for Finance going to do about this?
Before the eligibility criteria were agreed, we had very low levels of switching from the non-bank sector to the bank sector. This is in part because the eligibility criteria were not in place. The appetite to receive such customers was limited. That has been challenged. We now have agreed criteria and we have the Central Bank confirming that around one quarter of non-bank mortgage accounts come within scope of the switching criteria. That is a very significant start. We need to see activity levels in respect of switching from non-bank to bank increase significantly. I make it clear that I will be very closely monitoring implementation of this set of eligibility criteria. I will also be monitoring the implementation of the key player in the non-bank sector, namely, Pepper. It has come forward with an alternative repayment arrangement that involves a 3% temporary fixed rate for customers. We will be watching very carefully how many customers who are in distress are actually in a position to access that rate and benefit from it. I hope I have the support of the Deputy in that regard.
