Last week in reply to a parliamentary question about sub-prime mortgage lenders, the Minister referred to the Financial Regulator's consumer protection code, which he stated requires lenders to "act honestly, fairly and professionally in the best interests of their customers". I would like to give the Minister an example of how that requirement is being adhered to in the real world.
I was contacted by a constituent who, like so many others, is struggling to make ends meet in the current economic downturn. She and her partner bought a house during the so-called boom years, when young adults came under intense pressure to get on the property ladder. In their particular circumstances, they felt they had no option but to turn to a sub-prime lender for their mortgage. With her partner having recently been made redundant just a month before the birth of their third child, they are both out of work and unable to meet their mortgage repayments.
The couple went to the Money Advice and Budgeting Service for assistance, whose staff contacted their lender to ask for a six-month moratorium on their mortgage. The lender's response was "We do not do moratorium". The lender would offer nothing but to reduce the mortgage by half for six months, not as a discount but as a deferral. Under the arrangement offered, the couple would have to repay the difference over the following months, with half the mortgage paid now and the full mortgage to follow along with a €100 additional sum per month to cover the difference until cleared. That was the only option open to the couple and the Minister of State would agree it was no option at all. They had to take it because they are desperate.
The lender has unsurprisingly refused to pass on most of the recent interest rate cuts. As of last month the people were paying a rate of 8.45%, only a 0.5% of a decrease since the European Central Bank first began cutting rates in October. The lender has simply refused to pass on the other reductions in the lending rate. Today, the ECB rate was decreased by a further 0.25% and I fear the lender will not pass on this cut either.
It is clear the sub-prime leopard has not changed its spots. For all the opprobrium it has rightfully received, the industry still engages in predatory practices aimed at squeezing every last penny it can from those with the least ability to pay. The Government's response to this crisis has been entirely inadequate and has made matters worse by ensuring that low income people have even less money to pay their mortgages because of the income levy, the so-called pension levy and the increase in value-added tax. It has refused to insist that interest rate decreases are passed on or to legislate for a moratorium on repossessions, apart from the minimalist six-month moratorium which applies only to banks benefiting from the recapitalisation scheme. It has offered no protection to people who simply cannot pay.
We are already beginning to see the consequences of this in the increasing numbers of repossessions coming before the courts. How many people will have to lose their homes before this Government finally decides something must be done? If the current global economic crisis has taught us anything, it should be that a hands-off approach to the private sector simply does not work. There must be a point at which the Government steps in and insists that private industries operate not only according to an aspirational code but under firm and clear regulations.
A mandatory two-year moratorium on repossessions for all mortgage lenders should be the urgent first step in this process. We must also look at legislation to allow the victims of aggressive lending practices to renegotiate mortgage terms, including allowing people on fixed rates to change to variable rates without incurring the extortionate penalties some lenders are charging.
I am appealing to the Minister to consider the issues I have raised. There are thousands across the State in a similar position to that of the constituents who contacted me, and their numbers will only increase over the coming months and, perhaps, years. The refusal to properly regulate this industry played an enormous role — which should be clearly understood — in leading us into this crisis to begin with. It is inexplicable that this Government has not learned from this mistake.
I urge that the points I have made are taken on board and acted upon. I hope measures will be announced in the coming week that will bring relief to the hard-pressed families throughout the country to whom I refer.
