I have a request from Deputy Shane Ross that his Question No. 3 be taken first. Is that agreed? Agreed.
Priority Questions
State Banking Sector
Shane Ross
Ceist:3. Deputy Shane Ross asked the Minister for Finance his timetable for the sale of the Government's stakes in Bank of Ireland and AIB; if he has sought any external advice on the matter; if he is keeping in touch with the public interest directors on the proposed sale; his plans for the proceeds; and if he will make a statement on the matter. [8602/14]
My question relates to the proposed timetable for the sale of the Government's stakes in Bank of Ireland and AIB. Will the Minister also indicate whether he has sought any external advice on the matter, whether he is keeping in touch with the public interest directors in regard to the proposed sale, and his plans for the proceeds?
The State has already executed the successful disposal of some of its investments in the banks. Last year the State completed three transactions, namely, the sale of our CoCo and preference share investments in Bank of Ireland, and our investment in Irish Life. These disposals generated total proceeds of €4.45 billion.
AIB and Bank of Ireland are at different stages in their recovery and this influences the relative attractiveness of each bank to the investor community and its consequent valuation. Bank of Ireland is the more advanced of the two and this provided us with the opportunities we chose to avail of last year. Following the monetisation of the preference shares in December 2013, our remaining investment in Bank of Ireland comprises our 14% equity holding. The market value of this holding, at the current share price of 33 cent, is €1.5 billion. As I stated recently, any decision to sell this stake will be a question of price. Officials in my Department continue to monitor market conditions and advise me in this regard.
With reference to AIB, I am encouraged by the progress the bank is making. Our first priority is to see it return to profitability and address its legacy issues. This should, in time, enable the State to be in a position to exit part of its investment in the bank should we wish to do so. As I said recently, the Government might look to "test the market" before the next election in order to establish a valuation for the bank. Officials within my Department have extensive banking and capital markets experience both from previous roles in the private sector and from work done for the State during the crisis. Hence they are well qualified to assess suitable opportunities and strategies to dispose of the State's remaining bank investments. In addition, these officials meet regularly with internationally renowned investment banks to discuss relevant market intelligence relating both to the Irish banks and international banking developments in general.
My officials also meet with international institutional investors to gauge their interest and investment criteria. Notwithstanding this, I will consider the need for specialised financial advice when I need additional market-based advice to strategise how to best dispose of our investments.
Additional information not given on the floor of the House
I meet regularly with the boards of both banks, including the public interest directors. The agenda for these meetings tends to cover a wide range of issues, including our thoughts in regard to our bank investments.
Finally, it is premature to speculate on the use of the proceeds from any future investment disposals. Notwithstanding this, any decision regarding the use of disposal proceeds will be made in the best interest of the taxpayer.
I was prompted to ask this question after seeing the Minister being interviewed by Bloomberg in a snowy Dallas. It seemed to me that he was making a pitch to international investors in this interview, pointing out that AIB and Bank of Ireland are for sale and what an attractive proposition they are. The Minister indicated in his reply that Bank of Ireland shares are currently priced at 33 cent. Does he feel under any pressure to sell the State's stakes in the banks? He referred in his reply to the next election. I do not see why that should be a cut-off point.
We have a mandate for five years. The timeframe is not election-related.
We are looking at March 2016, in other words.
Is it not very dangerous to put the two pillar banks, as the Government calls them, out for sale to international predators at a time when we are encouraging, by our policy, a cartel situation? There is a real concern that although we have very few players in this market, the Government at least has some hold over the remaining banks which offers some protection to customers. The danger in selling the stakes to outside bodies is that we could end up with an international instead of a local cartel.
Business news channels like Bloomberg give an opportunity to get the Irish story out there and put our message across, which is otherwise difficult to do. I try to affect market sentiment in the interviews I do. The point I wanted to underline is that the State does not have a long-term interest in holding State banks and our intention is to restore them to the private sector in due course. When I was asked when that will be done, I replied that we will test the market in due course.
The message is not so much that we are about to sell the banks; it is that the policy is that we will not continue with State banks in the medium term. We will get private investors in. Of course there are concerns, and the Deputy is right; I would like to have more competition in the banking sector in Ireland. I also think that in Ireland and across Europe, banks will not be able to provide the liquidity that the European economies need. We will have to move more towards an American model, where there are non-bank sources of funding for investment and for expanding the economy.
I thank the Minister for his response. He has been to Brussels looking for recapitalisation of the banks. Is this sale subject to the subsequent recapitalisation, or will it be done regardless? In other words, if the Minister goes to Europe and says that these banks need recapitalisation badly, or at least need to be compensated under the ESM, will they be sold as recapitalised banks or will they be sold as they are at the moment?
First of all, I do not believe the Irish banks require extra capital, but we would like to recover some of the capital that we had already invested in the recapitalisation in March and April 2011. We are pursuing a number of things in parallel, and the movements do not contradict each other. One way to get some of the money that we invested in 2011 back from European sources would be for a European institution to take some of the bank shares, and to give us money in lieu of those shares. That is obviously one model. Whether it is a sale to the private sector or some kind of retroactive recapitalisation, the value of the shares is very important. It is quite clear that as we manage our portfolio, enhancing the value of the shares is important, whichever route we pursue.
Mortgage Debt
Michael McGrath
Ceist:1. Deputy Michael McGrath asked the Minister for Finance the action he will take to safeguard the interests of residential mortgage holders whose loans are sold to unregulated third parties, including the customers of Irish Bank Resolution Corporation in special liquidation; and if he will make a statement on the matter. [8564/14]
Joe Higgins
Ceist:5. Deputy Joe Higgins asked the Minister for Finance if he will devise a scheme to provide a solution to protect the home ownership of the 13,000 Irish Bank Resolution Corporation mortgage holders whose accounts are being offered for sale to venture capitalists; if he will prevent that sale. [8480/14]
The Minister is well aware of this question by now. It relates to the sale of mortgages to entities not regulated by the Irish Central Bank. The issue has come into sharp focus because of the imminent sale by the special liquidator of IBRC mortgages, but it could also apply to mortgage holders of any other bank. What would the Minister do if AIB, Bank of Ireland, Permanent TSB or Ulster Bank informed the Department today that it intended to sell its mortgage book? Would the Minister allow it to go ahead in the same way that the sale of the IBRC mortgages is currently proceeding? I doubt it very much, so I am hoping we can make some progress on this issue today.
I propose to take Questions Nos. 1 and 5 together.
I am fully aware of the concerns raised by residential mortgage holders of IBRC whose loans are currently being sold by the special liquidators. The issue around the continued applicability of the various protections afforded to mortgage customers is legally very complex and requires careful consideration. As indicated previously, my officials are currently examining the issue closely with their colleagues in the Central Bank and in the Office of the Attorney General.
It is important to note that the sales process for the residential mortgage book is ongoing. The valuation process for this portfolio was completed on 11 September 2013 and the sales process began on 14 October 2013. Following receipt of indicative bids, a reduced number of bidders were progressed to the second phase of the sales process, which was launched on 29 November 2013 and is expected to be completed next month. Like all of the IBRC loan sales, the residential mortgage book is being sold in an open and transparent process, and should bids not be received in excess of the valuation they have obtained, then the portfolio will be sold to NAMA.
The ultimate purchasers of these books, be it NAMA or any other unregulated entity, will be required to honour in full the legal terms of the loan agreements entered into between IBRC, or INBS, and its customers. It must be stressed that the contractual terms and conditions of all customer mortgages will not change as a result of the ultimate sale of these obligations to a third party.
While it is too early to speculate as to the identity of the ultimate purchaser of these loans, I have been advised that in the event that NAMA acquires the loans, it will be mindful of its legal obligations and is likely to apply best practice in respect of the code of conduct on mortgage arrears, or CCMA. Furthermore, it has confirmed that no borrower will be in any worse a position.
Following two recent portfolio sales of residential mortgages to institutions not covered by CCMA in Ireland, in both cases the acquirers of those books have chosen to implement the CCMA voluntarily, as they believe it is in the best interests of both the institution and its customers. I have no reason to believe that this will not also be the case in respect of the sale of the IBRC residential mortgage book.
The Minister makes the point that the unregulated entities that have bought mortgage books thus far have complied with the code voluntarily. What if one of those mortgage holders disputes that? What if they believe that those companies, vulture funds, or whatever the Minister wants to call them, are not complying with the code? Who adjudicates on that? Do they go to Dame Street and knock on the door of the Central Bank? They will be told it has nothing to do with the Central Bank. Do they go to Merrion Square and knock on the door of the Department of Finance? They will be told that it has nothing to do with the Department. They have nowhere to turn, and that is the point. The owners of these funds can claim that they are voluntarily complying with the code of conduct, but who decides that? Who adjudicates when an issue arises if somebody gets into difficulty with their mortgage and the fund is moving in on them immediately? Nobody adjudicates, and that is the bottom line.
The Minister knows there is a problem and that is why he is proposing his own legislation dealing with the sale of loans to unregulated entities, but that is not due to be published until 2015. He acknowledges by his own argument that there is a difficulty here. He claims that it will be a very difficult to get a repossession order in a court unless the entity has complied with the code of conduct, but are we really going to let the bailiff come up the driveway? Are we going to allow people to go through the stress and anxiety of a threat of repossession before that particular provision is invoked?
That is not the way I see it. Quite clearly the process is complex, and it is in the hands of an independent liquidator who is operating in accordance with the law. The taxpayer comes into this as well. The job of the liquidator is to get as much value for the taxpayer as he can. While those in the Opposition seem to stress the interests of the mortgage holders, and rightly so, they forget about the interests of the taxpayer, because these are two sides of the same coin. If the mortgage holder gains, the taxpayer loses, according to the case presented by many people here-----
-----although not by the Deputy, who has always handled this responsibly. If I were to attach additional conditions to the mortgage book at the point of sale, there is a possibility that I would be legally challenged on the argument that that might reduce the value of the book. I would be leaving myself open to challenge by other creditors, and there are many other creditors in the bank.
If we do what I have been advised to do, this will work out. I am quite confident it will work out. Two books have been sold already. They gave rise to no difficulties whatsoever and the purchasers are complying fully with the protocols established by the Central Bank. The likelihood here is that if the performing mortgages are not sold they will go to NAMA, which will comply fully.
That is no problem.
If they go to third-party unregulated entities, the Deputy has asked who will take responsibility. We will talk to them. We will tell them we expect them to comply and ask what the story is.
The Minister will have no power.
We are not going to let it get to the point at which they are negotiating with individual mortgage holders. We will work in the same way that we worked with the other two entities which bought books previously.
I ask people not to be trying to frighten those who have mortgages with Irish Nationwide Building Society, which is now IBRC. It is very unfair to be hyping this-----
They are frightened.
Of course they are frightened. They are being wound up by a number of Deputies in this House who are stating very exaggerated positions and they are deliberately trying to frighten people so that they can get headlines in the newspapers. That is very unfair.
What is frightening people is that the Minister is proposing a process that will put 13,000 mortgage holders into the hands of vulture capitalists. It is the form and the record of those vulture capitalists that leave people in no doubt as to what they might face. It is quite pathetic for the Minister to come in here and say that he will ask these vulture capitalists to be nice to the mortgage holders whom they take in hand, when the Minister knows well that the bottom line for these vultures is profit maximisation.
They are the ones who crashed the international economy, for God's sake. Now, the Minister is proposing to hand over the victims of that crash to them again. It is quite incredible. The Taoiseach said on Tuesday that the code of conduct could not be put in as a condition of the sales process and that it might be legally questionable because it would lead to the erosion of the value of the assets from which the creditors seek proceeds. Why would it lead to the erosion of the value of the assets to have the code of conduct attached? Does this not give the game away that the code of conduct would not be followed and does not need to be followed by the people concerned? Mortgage holders would then be left at the mercy of these vulture capitalists.
If one was only selling a patch of ground down the country, one would know that the more conditions that were attached, the greater the potential for a reduction in value. That is the general point. I am not saying we will be sued, I am saying there is a legal risk. Therefore, it is much better not to interfere with the sales process and make sure the purchaser complies with all contractual obligations, as he or she has to under law. We can then take the issue of the procedural protocols subsequently, as we did when the other two tranches were sold, and get them to comply after the sale. There is then no exposure to a legal challenge and everyone is protected. That is where I will go. Of course, we have also indicated that if we have to legislate, we will do so. Deputy Michael McGrath's Bill is very helpful in that respect. We are indicating in advance that we do have power and that we can take legislative power. However, we will be able to solve this problem as we solved it on other occasions.
There are two sides to this issue. The liquidator has to get maximum value for the taxpayer. I would like to see Deputies standing up for the taxpayer, as well as for mortgage holders because it is reciprocal. The second point is that there is no need for wildly emotive language, frightening people who are already in difficulty with their mortgages, telling them that the sheriff is about to arrive at the door and that there are these corrupt people who are going to close them down. That kind of dialogue is not helping anybody. The Deputy is frightening decent people who are doing their best to deal with their mortgages.
I am not frightening anyone.
Yes, I agree.
The reality is that if the worst comes to the worst and a person's mortgage is in difficulty and then sold to an unregulated entity - a third party - that entity can move against the mortgage holder virtually immediately. If we look at the standard contractual terms of any mortgage agreement, they are stacked heavily in favour of the lender - the Minister knows this as well as I do. It is simply unfair and unacceptable that there is any prospect that the basic and vital statutory protections that every other mortgage holder in the country possesses would be removed from IBRC mortgage holders or anybody else.
The subtext of what the Minister is saying about the taxpayer is that these funds may well be prepared to pay more if they do not have to comply with the code. Why would they pay more if they do not have to comply with the code, given that they would not intend to comply with it?
That is not the point I am making.
That is the bottom line. The Minister has acknowledged there is a problem which can be solved by legislation or a simple direction order from the Minister to the special liquidator. This is a genuine issue. People are afraid of being exposed, vulnerable and isolated in the face of an unsympathetic fund that is out to make a quick buck. That is a genuine fear. Perhaps some people have stoked up that fear, but it is very real.
The Minister challenges Deputies to stand up for the taxpayer. It is a pity this and the previous Government did not stand up for the taxpayer when they allowed themselves to be dragooned by the European Union into taking onto the backs of taxpayers €60 billion of bad gambling debts from the financial markets. Why did they not stand up for the taxpayer then?
Why is it always complex when it comes to the rights of the small person? Why can the Government not write down the loans for the people affected as a model of what should be done with distressed mortgages generally for those left with these unsustainable blackmail mortgages from the time of the property bubble? That is the obvious thing to do - write them down to today's values and the monthly repayments. In that way, we would sort out the problem and free up hundreds of millions of euro for the real economy.
We on the finance committee will be discussing the sale of former Irish Nationwide Building Society mortgages next week. Will the Minister release to us the PricewaterhouseCoopers report, a secret report which was commissioned and given to the Minister on this process, in which we believe different options were outlined for what could be done with these 13,000 mortgages? We need to have sight of it. Will he release it to us?
The liquidator's job under law is to recover as much value as he can for the creditors. In this case, 70% of the creditors by value are Irish taxpayers. With regard to the €60 billion or so invested across the banks, what we are trying to do is recover some of the value for the taxpayer and this is one of the key parts. That is the opening position.
The liquidator is independent under law and operates as liquidators operate. He requisitioned PricewaterhouseCoopers to provide him with a report. It is his report, not mine. As I understand he is going before the Deputy's committee, the Deputy can ask him whether he would be prepared to release the report in full or in part. He has already said there is market-sensitive information contained in it, but the Deputy could ask him to redact this information and give him the rest of it. I do not mind. As he will be before the committee, the Deputy can ask him. It is his report and he is independent under law.
Tax Code
Pearse Doherty
Ceist:2. Deputy Pearse Doherty asked the Minister for Finance the way he will lift the tax burden of lower and middle income families in such a way that the most vulnerable are given a break from the tax burden. [8572/14]
In this question I ask how the Minister for Finance proposes to lift the tax burden on lower and middle income families to ensure the most vulnerable in society are given a break from it. Usually, I would not table these questions this early in the year or this far out from a budget, but the Minister for Finance, the Taoiseach and other Ministers have gone on many media platforms, both domestically and internationally, to say they intend to widen or increase the threshold for entry to the higher rate of tax. I ask the Minister what consideration he has given to the impact of this proposal on the most vulnerable in society.
The Deputy will be aware that I am on record as stating my belief the income tax burden is too high in Ireland and that it needs to be reduced. However, I have also said that, although it is my intention to alleviate the burden, I can only do so when the public finances allow it. Lest it has escaped anybody's attention, the general Government debt at the end of 2013 was estimated to be just over €200 billion and each year in which we incur an annual deficit the figure grows. It is imperative that we, at the very least, are able to meet the interest costs on this debt, if it is not to spiral ever-upwards. Interest payments are the least productive area of Government expenditure and what we spend on interest could be put to better use elsewhere.
Although we have successfully exited the EU-IMF bailout, this does not mean that we will ever allow a return to past practices where expenditure grew to unsustainable levels, while the tax base was simultaneously hollowed out. The Government remains committed to returning the public finances to sustainability. Under the terms of the Stability and Growth Pact, until Ireland has reached its objective of a balanced budget in structural terms, we may not introduce discretionary revenue reductions, unless they are matched by other revenue increases or expenditure reductions. This means that the Government must consider carefully any tax change as any reduction will have to be offset elsewhere.
Having said this, it should be acknowledged that Ireland has a progressive taxation system which ensures the burden of taxation falls most heavily on those with a higher ability to pay. The latest data from the OECD's 2013 Taxing Wages report shows that Ireland has one of the most progressive income tax systems in the developed world. It is in this context that the Government has committed in the programme for Government not to increase the marginal rate of income tax. The programme for Government also contains a commitment not to change tax credits which, at current levels, ensure an estimated 856,000 workers are excluded from the charge to income tax entirely. The low effective tax rates for low income workers ensure their work pays and are a growth-friendly aspect of Ireland's tax system. However, against this, Ireland has one of the highest top marginal tax rates in the OECD, while also having a very low entry point to the application of the top marginal rates. These aspects are less growth-friendly owing to their negative labour supply incentives.
Additional information not given on the floor of the House
Recent research from my Department has indicated that growth and employment prospects can be enhanced through a careful re-balancing of the tax system away from labour taxation towards greater use of capital and consumption taxes. Research by the OECD and the European Commission would also support such a re-balancing. These insights are useful given the fiscal constraints that I have already referred to.
As is normal practice for the Minister for Finance I have no intention of setting out planned changes to the tax system in advance of the budget, which is almost eight months away. My officials constantly model and examine potential options for changes to the tax system for my consideration as part of the overall budget package.
I appreciate what the Minister is saying. Obviously, the Government is still committed to an austerity budget next year that will take €2 billion out of the economy. Perhaps it is the fact that we are facing into the local and European elections in a couple of months but somewhere in the middle of that, the Minister has found it within himself to announce that he wants to increase the threshold. Sinn Féin acknowledges that the threshold here is low compared to other countries but one must also look at the effective tax rate that is paid here compared to other countries for a person earning €40,000 or €50,000 where one sees a different scale.
The Minister will have seen from our alternative budget that Sinn Féin is very clear that we should have a tax reduction for low and middle-income families. We believe the best way to do this is through abolishing the household charge and giving people, on average, €278 back. The Minister will be well aware that increasing the threshold by €1,000 would cost the State €150 million, that 15% of the benefit of that would go to those earning above €100,000 and that 1.1 million taxpayers will get no benefit from increasing the threshold. Why do the Minister and his colleagues in the Labour Party believe that this is the best and most effective way to lift the burden from vulnerable low and middle-income families?
I cannot get into the details of a budget that will not occur until next October because I am only thinking about initial concepts for it. It is not fruitful to have some kind of detailed debate here. What I was pointing out was that any tax changes that will take place in any budget I introduce will be driven by considerations of growing the economy and employment. I also pointed out that there were tax reductions in each of the past three budgets but, of course, they had to be paid for by increasing taxes elsewhere. For example, two months after coming into Government, I took the VAT on the hospitality industry from 13.5% down to 9%. That was done to restore the tourist industry and create jobs but, of course, we had to raise taxes elsewhere to pay for it. It was still a successful initiative. In this year's budget, I abolished the travel tax and immediately got a response from Ryanair which said it would bring 1 million extra tourists into the country. In our first Finance Bill, we reduced the stamp duty on farmland so that as we go into the quota-free days post 2015, the potential is there to transfer land cheaply to the next generation of farmers. I will follow the same course here. I am pointing out that the portion of the income tax code that is most adverse to job creation is the fact that one goes on to the higher rate of tax at €32,800. I am saying that if there are resources, that is the first piece I would like to do in alleviating the burden of income tax but it is only the initial phase of a debate that will keep running until next October.
I am trying to feed into that debate in a productive way. I ask the Minister to acknowledge to the House that by increasing the standard threshold, 1.3 million taxpayers in this State will not benefit by one penny and many others may not benefit because of the way it is calculated. One could have married couples treated as a single unit. We know that 1.3 million taxpayers would not benefit whatsoever, that the cost of increasing the threshold by €1,000 is about €150 million and that 15% of that benefit would go to individuals who earn above €100,000. Can the Minister acknowledge this because this debate has been dressed up by others to make it seem as though this is about giving taxpayers something back? I acknowledge the Minister has not dressed it up in his contribution here today. Can the Minister acknowledge that if he was to increase the standard threshold, the vast majority of taxpayers who have taxable income would not benefit at all and a significant portion of this benefit would go to the highest earners? That is the reason I believe that if something is to be given back, let us ensure that the people who are hanging on by their fingernails - those who do not have taxable income or those whose taxable income is moderate - are given something back. There are other ways to give something back, including abolishing the property tax and exempting minimum income earners from the universal social charge. There are many more in respect of which I, on behalf of Sinn Féin, would like to engage with the Minister.
I acknowledge that there are differences of opinion about this. The next budget at a headline level must have an adjustment of €2 billion so it is not that we are flush with money to give away. What I am trying to do is put the debate into a space where we are not trying to endear ourselves to the electorate or do pre-election things. What I am saying is that we will be consistent with the policy I followed. I acknowledge that people do not fully agree with the policy but the policy is that if we are making tax changes, we will do so in a way that has a labour market effect. In other words, we make it easier to create jobs. Of course, the Deputy is right. It is quite clear that out of people who work, 856,000 people do not pay income tax at all. This will have no effect on them because they do not pay any income tax. Of course, it will have no effect on people with an income below €32,800 because it is only at that figure that one goes on to the higher rate of tax. There are other things in the tax code that we can debate and I am sure we will come back to this on several occasions. I was simply identifying for the purpose of guidance where I see a priority but I am open to any other suggestions depending on resources.
Mortgage Arrears Proposals
Michael McGrath
Ceist:4. Deputy Michael McGrath asked the Minister for Finance his views on whether financial institutions are showing sufficient innovation in the nature of the solutions they are putting in place for distressed borrowers to ensure that arrangements are genuinely sustainable; his views on whether there is a lack of consistency in approach across different lenders; and if he will make a statement on the matter. [8565/14]
The purpose of this question is to ask if the Minister is satisfied with the approach taken by financial institutions to deal with indebtedness, in particular mortgages. It is not explicitly mentioned in the question but it does relate to mortgages. My overall point is that I am not looking for absolute uniformity in terms of the approach taken by the banks to deal with people's indebtedness and mortgage arrears problems but I believe there is a need for greater consistency, which we will tease out in a few moments. I would like to know the Minister's views. Some progress is being made in terms of split mortgages being offered and accepted by people. Many people are still refusing them for reasons we will go into in a moment. Is the Minister satisfied with the consistency and innovativeness used by institutions in terms of offering different solutions?
As statutory regulator of credit institutions, the Central Bank has the power, from both a prudential and consumer protection perspective, to require banks to meaningfully address mortgage arrears cases on their books. Durable long-term restructures will have to be applied having regard to the circumstances of individual cases. The Deputy will be aware that the Central Bank's mortgage arrears resolution targets, MART, announced last March set time-bound and measurable targets for the main banks requiring them to systematically address their arrears book.
On the basis of its audit of the bank's mortgage arrears targets, the Central Bank has indicated that all six mortgage lenders covered by the MART process have reported that they met the 20% proposed sustainable solutions target for the second quarter of 2013 and also the 30% target for the third quarter in 2013. Under this rolling process, quarterly performance targets have now been set to the end of June 2014 to require the banks to propose and put in place durable long-term solutions to address individual cases of mortgage arrears of more than 90 days in arrears.
The subsequent targets set by the Central Bank will be the subject of further audit work to ensure consistency with the sustainability principle in respect of solutions being offered by the lenders. The Central Bank has informed me that a range of sustainable solutions have been utilised by each of the lenders to date, some of which are mentioned in the Central Bank's internal guidelines on sustainable mortgage solutions.
These solutions include but are not limited to the following - term extensions; split mortgages; capitalisations; and permanent interest rate reductions. It will no longer be acceptable for banks to apply short-term solutions to cases where there has been a fundamental and long-term change in the position of the borrower. Durable long-term restructures will have to be applied having regard to the circumstances of individual cases.
The end December 2013 mortgage arrears data in respect of the six MART banks, which was published by my Department on 13 February, shows that an increasing number of permanent restructures are now being put in place by banks. I would expect that if banks need to introduce new innovative sustainable solutions, the Central Bank will be in a position to assess those products from a regulatory perspective.
Taken together, the necessary framework is in place to enable banks to work with distressed home owners to reach sustainable solutions for dealing with their personal indebtedness situations.
However, early and effective engagement between borrowers and lenders is key to resolving the cases of mortgage difficulty. Where there is effective and meaningful engagement by all parties on a mortgage difficulty, the data show that an increasing number of durable long-term mortgage restructures are being put in place. It is accepted, however, that it will be necessary for lenders and borrowers to continue to build on this.
What I am seeking to do is highlight the lack of consistency among the banks. I welcome the new split mortgage model AIB is rolling out, whereby if, over time, a borrower meets his or her obligations under the particular arrangement reached, more and more of the loan essentially can be written off. This is a progressive and innovative initiative and I congratulate AIB and the Irish Mortgage Holders Organisation on its being put in place. Ulster Bank is rolling out its economic concession, whereby some people have had the interest rates on to their mortgages reduced to 0.5%. If one is paying interest at a rate of 4.5% and it is reduced to 0.5%, it makes a massive difference. Again, this is a very innovative initiative. Bank of Ireland is taking a much more hard-nosed and tough approach. Perhaps this is being done at the bidding of the majority private sector ownership of the institution, but the advocates of borrowers and I have seen evidence of this approach.
It is welcome that increasing numbers of split mortgages are being offered. People still have concerns about the balloon payments which must be made at the end of the term of such mortgages. The AIB proposal is quite good in that regard. People are also concerned about the regular reviews that will be carried out. I am aware of split mortgage offers being made in circumstances where full reviews must be carried out every six months. These reviews involve individuals being put to a great deal of trouble because they are required to complete the standard financial statement form on each occasion. People are being denied the certainty they require in order to plan their financial future. I am not seeking uniformity of approach among the banks, but I am looking for a degree of consistency. For example, banks are still charging interest on the warehouse portion of some split mortgage models. That is not a sustainable or viable solution.
I do not disagree with the Deputy's analysis. At the start of a process of this nature, it is helpful if the various financial institutions try out different approaches. Some of these approaches work in theory, but they do not work in practice. One must see them operating in practice. It is the function of the Central Bank to ensure the consistency to which the Deputy refers. It is effective in that regard. We are all aware that the start of this process was disappointingly slow. However, it is now moving well and is on track. A total of 51,000 permanent restructures have been offered to date and it is obvious that significant progress is being made.
In the context of the overall position, the problem is not quite as large as some might imagine. A director of AIB recently informed me that the average amount of arrears in respect of the institution's 35,000 mortgages in arrears was €13,000. Average arrears of €13,000 do not constitute an insurmountable obstacle, particularly as the economy recovers and people return to work. If one was to add two years to the term of a mortgage, one could cover the level of arrears to which I refer. I accept, however, that different solutions must be found and that the various banks are taking different approaches. We must give them the freedom to do this, while also pressing them to meet their targets. If the approach being taken by a particular institution is working, the Central Bank should ensure it is adopted by other institutions across the system.
I thank the Minister. I have written to the Governor of the Central Bank, Professor Patrick Honohan, to outline to him my views on these issues. The reality is that how one is treated depends on the bank with which one has one's mortgage. There are significant differences in approach among the banks. That is the reality people are facing. The banks are operating within a framework established by the Central Bank. However, there is a need for greater consistency because people are being treated quite differently depending on the institution with which they have their business. That is unfair. Some progress has been made, but approximately four out of every five borrowers whose mortgages are in arrears have not had a permanent restructuring put in place, which is unacceptable. Given how far we are into this crisis, much more progress must be made. One can state the average amount of arrears of €13,000 among those AIB customers whose mortgages are in arrears is manageable. However, that level of arrears could represent the fact that someone has not been able to pay his or her mortgage for 12, 18 or 24 months. Being obliged to pay down that amount would constitute a serious problem for many of those involved. There is much more work to be done. I acknowledge that some progress has been made, but it has been far too slow. It is not acceptable that four out of five people whose mortgages are in arrears have still not had permanent restructurings put in place. We must do better than this.
We can work with the Central Bank to ensure the targets which have been set will be reached. The targets for 2014 are reasonably good. I would be concerned if there were to be any slippage in respect of these targets. We will monitor matters very carefully, both in association with the Central Bank and via my Department's own mechanisms, in order to ensure the targets are met.