I thank the Chairman and members. I am very grateful for the opportunity to appear this afternoon to discuss the issue of housing and homelessness, with a particular emphasis on how obstacles that are currently impeding progress on this issue can be surmounted and the specific actions that might be needed to address the problem The Banking and Payments Federation Ireland, BPFI, is a membership organisation which represents banks active in the domestic retail market, in the international banking sector and in the payments sector.
The housing market cannot and should not be viewed as a single, homogenous sector, but rather an amalgam of sub-sectors, including social housing, affordable housing, rented accommodation and owner-occupied or mortgaged property. The homelessness issues arising are further complicated by the fact that there are regional variations and challenges. There is, therefore, no single generic solution. The challenge for public policy is to ensure the correct alignment between the needs of individuals and their families and the supply of various housing types. Success in meeting this public policy challenge requires a co-ordinated strategic response with full participation on the part of all of the stakeholders and relevant State agencies and Government Departments. Oversight is needed at Government and Oireachtas level so that this is driven on and delivered out.
On behalf of my colleagues in the banking industry, I wish to restate our commitment to engaging fully with the committee and with the actions it recommends at the conclusion of its deliberations. We want to ensure that our sector is fully engaged and that it helps to work creatively to deliver the elements of the national response which fall within the competence and remit of its members. No one sector on its own can address this issue. Every one of us can work on and address elements of a strategy.
Any financing provided by the banking sector to address supply and demand issues in each of the housing sub-sectors I have mentioned must comply in full with the regulatory requirements of the Central Bank of Ireland and must be viable for all parties.
It is essential that the public policy response to this crisis deliver quickly and have some early wins in all of the sub-sectors I have mentioned. We must have the right categories of housing stock in the correct locations and that policy must be sustainable in the longer term. We need to be very careful not to repeat the mistakes of the past and to learn from them in our rush to collectively address the immediate pressure of homelessness. Whatever solutions are arrived at and whatever part the sector in which I am involved can play in it, we must learn from the past.
The wider banking sector is interested in discussing how it might play a role in supporting and financing the building of housing supply and capacity in each of the sub-sectors. I am happy to take back and explore in detail with the broader banking sector any involvement the committee might consider the sector can have. That is on the basis that it will be individual member banks that will have to determine their level of involvement. Of course, it must be viable and sustainable over the lifetime of financing facilities provided for all parties to the agreements.
If we had been here some time ago, we might have been talking in a different language about mortgage supply and its availability. Thankfully, things have improved significantly and our members are fully committed to providing mortgage finance for those who require housing in that segment or sub-sector and who have the capacity to borrow and repay. However, banks must do so on a prudent basis in a competitive market. In my submission to the committee which I will not read through in detail I have provided some detail on mortgage drawdowns from the first quarter of 2014 through to data which we will be publishing after this meeting for the first quarter of 2016. At a high level we can see that €4.9 billion in total was drawn down in 2015. That was a 26% increase on the mortgage drawdown in 2014. That equates to 27,324 new mortgages. I am conscious that this addresses just one sub-sector of housing and housing demand. In graph 2 it is interesting to note that the role of the first-time buyer is now the single largest category, accounting for close to half of all mortgages drawn down.
Another graph shows the drawdown volumes by first-time buyer, mover-purchaser, rental investment or the buy-to-let sector, remortgaging or switching and top-up mortgages. I am pleased to be in a position to provide the committee with unpublished figures for the first quarter of 2016. They show that 5,446 mortgages, equating to a value of €1 billion, were drawn down in that quarter. While this might appear to represent a slight downturn on the figure in the equivalent quarter in 2015, all commentators would agree that there were specific factors that caused the figure in the first quarter of 2015 to be higher than expected. It is also interesting to see in the figures that the value of re-mortgaging, or switching, continues to increase, although from a very low level. This is one of the countries in Europe that now has a mortgage switching process. I know from talking to my colleagues at the European Banking Federation that many of them do not have that kind of formal arrangement. There is a formal switching process now in place and we can see that 392 re-mortgages took place between January and March this year to a value of €78 million. That is a 128% increase on the figure for the same period last year.
All of that lending is taking place within the context of the Central Bank’s macro-prudential rules in the mortgage and housing markets. The sector and my members fully recognise the importance of ensuring the stability of the banking system and protecting households from the risks of over-indebtedness. We support the Central Bank on the need to ensure a credit-driven bubble does not take hold again in Ireland. We note and acknowledge the intention of the Central Bank to maintain these rules. However, we welcome the Governor’s announcement that written submissions will be invited and considered on the calibration and application of the rules of the Central Bank. Clearly, as a sector, we will consult our members and, as we did last time round, make a written submission to the Governor for his consideration.
It is our view that the most significant impact of the Central Bank rules is the requirement for first-time buyers to save significant funds in advance of being considered for a mortgage.
This is most acutely felt in Dublin where, based on the average first-time buyer house price of €280,000, a first-time buyer needs to have a deposit of €35,000, equivalent to 12.5% of the house price. The burden to raise a deposit is greater again and is insurmountable for many of those who are currently renting given the escalation in rents, most notably in Dublin, in the past 12-18 months.
It is important to point out that a recalibration of the Central Bank rules in itself will not address all the problems faced in the housing market or the more immediate crisis of homelessness. The most fundamental problem is a shortage of suitable supply in key locations where demand is greatest. A myriad of factors put forward by commentators may be beyond the remit of banks, such as building costs, the planning process and regulations, land availability and use, and the capacity of developers to raise equity. Banks are important providers of development finance to viable construction projects but they are not, and cannot be, the providers of 100% finance and the builder needs to bring a significant element of equity to the project. That is a challenge for many builders and developers right now.
The general consensus amongst housing market stakeholders is that there is a medium- to long-term requirement to build 25,000 housing units per annum nationally and around 7,000 units in Dublin. There were approximately 8,100 commencements in 2015, representing a 5% increase nationwide over 2014, but a breakdown of the data shows that nearly 40% of these commencements were for one-off builds and only 38% were within the boundaries of Dublin local authorities where the pressure is most acute in all sectors. The ongoing shortfall in housing supply across the four subsectors is likely to further reduce the availability of housing units both for buyers and renters with increased pressure on rent levels, particularly in Dublin.
Finally, I will outline how BPFI and our member banks are working with borrowers who are struggling with mortgage and other debts. We believe that customer engagement with lenders is paramount and this is borne out by the continuing downward trend in the level of loan arrears. We consistently recommend four key actions for borrowers to follow: contact your lender as soon as possible; look at your financial situation with the help of a standard financial statement; always respond to communications from your lender; and avail of expert advice and assistance from the range of State agencies, voluntary sector bodies and professionals that are now available, in many cases free of charge. It is a daunting situation for any individual or family and it is imperative people engage and get good quality, independent advice. I know from dealing with Deputies over the past number of years that many of them are aware of the various schemes that are in place but I have added details of the schemes in the pack for information.
It is important we, and our member banks, work with trusted third parties to create a broad range of options for customers in distress to draw upon, depending on their circumstances. Many of these cases are unique and different people will require different levels of external support. I draw members' attention, in particular, to the Money Advice and Budgeting Service, which we find to be very professional and with which we have a long history of engagement. Details of a BPFI-MABS framework agreement for dealing with late-stage mortgage arrears, which is currently being finalised, are included in the pack. The BPFI-MABS protocol is already in place for dealing with unsecured debt such as personal loans, overdrafts and credit cards, as well as mortgage debt, and it is working very well.
We also work very closely with the Insolvency Service of Ireland to help overindebted customers get back on track through a range of options, such as debt relief notices, debt settlement arrangements and the personal insolvency arrangements.
We do so following the changes introduced by the Oireachtas 12 months ago in terms of the new bankruptcy regime.
The mortgage-to-rent scheme is one our members are very keen to continue to engage with and expand further if possible. To date, 156 cases have been completed and a further 637 are actively being worked on. We have had very constructive engagement from the State agencies, particular from the Housing Agency, the Department of the Environment, Community and Local Government and the Citizens Information Bureau in the context of trying to ensure that we can play a much more creative and productive role in maximising that scheme for families who meet the criteria and are in distress.
We have signed a mortgage advice protocol with a number of Departments. I have included it for members in the presentation. There is a commitment from all of the signatories to pay €250 for financial advice from an independent accountant to a borrower offered a long-term forbearance so that individual understands exactly what is being offered and is able to make the best decision for his or her family in light of his or her circumstances.
On general consumer information, in partnership with the Department of the Taoiseach and the Department of Finance we provided a leaflet recently to everybody in mortgage arrears and also to citizens information offices, libraries, every Oireachtas Member and so on. That leaflet provides plain English information and we obtained a National Adult Literacy Agency, NALA, plain English mark in respect of the accessibility of said information. The leaflet has been delivered to all those who are in distress and it sets out their options in clear, plain English and urges them to get advice and to engage. We also have a residential tenant's guide to receivership, which is actively pushed out by lenders and other entities to people who find themselves in that situation.
I and my sector recognise that we have an important role to play in supporting housing supply and in addressing the issue of homelessness. We also recognise that banks, or lenders in general, are but one part of a much bigger solution to the public policy challenge to which I referred at the outset. Our organisation's members and the industry are willing and keen to play their part in the development of a co-ordinated strategic response which delivers sustainable housing capacity across all the housing sub-sectors, not just one sub-sector. That addresses the issue of homelessness.
Our fundamental view is that what we are now facing is predominantly a supply problem in each of the four sub-sectors I mentioned. We look forward to taking questions from Deputies. If there is information I do not have to hand, I will revert to them immediately and provide it. We look forward to engaging, on receipt of the committee's report, on any individual items in respect of which it believes our sector can play a part.
