families who face losing their homes were thrown a mortgage lifeline today.
Thousands who can’t pay their mortgages may be allowed remain in their homes under radical new plans being considered by the Government.
A blanket debt forgiveness scheme has been ruled out, but people who are facing mortgage arrears will be allowed freeze part of their debt, take out negative equity mortgages or rent their homes back from local authorities.
The Keane Report which was released today recommends that a new organisation to help homeowners who are struggling with mortgage difficulties should be established.
The measures are designed to “to keep people in their homes” and “to reduce the burden on home owners facing debt servicing difficulties”.
Other measures announced include:
l A scheme to let local authorities and charities take over the homes of those in mortgage arrears that they cannot possibly pay back.
Instead of losing their houses, home owners would be able to lease them back from the local authorities at cheaper rates.
l A recommendation that homeowners be allowed to freeze a portion of their mortgage for a while to help reduce the monthly repayments – but at the same time still be allowed to reduce the capital owed.
l A proposal that people should be allowed to take out negative equity mortgages, which would let them trade down by taking the balance they owe on their original home on to the mortgage of the new, smaller home.
The report emphasised that there is a distinction between those who cannot afford to pay their mortgages and those who choose not to pay.
As part of the measures to address mortgage difficulties, Minister for Housing Willie Penrose will shortly reveal the details of two mortgage-to-rent schemes. It is expected that these will operate on a pilot basis initially, from next week. The report said that the main reason for mortgage arrears is affordability and not negative equity.
The report estimates that there are approximately 45,000 households in the country that are 90 days or more in arrears.
A total of 32,000 households are in 180 days arrears - this figure has doubled since the end of 2009.
The Herald understands that under each scheme, those in extreme mortgage distress who are eligible for social housing will be able to remain in their homes as social housing tenants with the bank of a housing association acting as landlord.
It says that “a blanket debt or negative equity forgiveness scheme would not be an effective use of State resources and would not solve the problem.”
It would cost €14bn to clear and only 10 to 13pc of those in negative equity are in arrears.
If mortgage relief was pushed up to 30pc, as some suggested, this would cost the Exchequer approximately €120m in a full year and it would not be appropriately targeted at those who need support. Split mortgages, where part of the debt would be 'warehoused', could be a viable solution.
But it said that there can be no ‘one solution suits all' and each mortgage holder in arrears should be assessed on the mortgage holder’s affordability, the level of negative equity and future prospects.
Banks will also have to take responsibility for tackling the mortgage crisis, the inter-departmental report outlined.
The possible solutions that will need to be advanced by banks to address mortgage over indebtedness include trade-down mortgages, split mortgages or sale-by-agreement.
In particular, the report also states that reform of the bankruptcy and personal insolvency law is “fundamental” and that without this the mortgage problem will not be resolved.
Once the report is approved, about 100 financial advisers will be recruited by the new organisation to offer a debt support service to those who face losing their homes because of mortgage arrears.
While some banks are already writing off some mortgage debts they are reluctant to admit to this because they want it to be the last resort.
'It still doesn't go far enough to help people in distress . . .
‘It still doesn’t go far enough to help people in distress ... ’MUM Jean Newport said that the proposals didn't go far enough to help mortgage holders like her who find themselves in severe negative equity.
Jean moved to Maynooth in 2005 to be closer to her son's school but when the recession hit, she found herself struggling with mortgage repayments which were seven-and-a-half times her salary.
She said that the recommendation to allow distressed mortgage holders to rent their homes back from local authorities was a small step in the wider issue.
“I think it must be very disheartening for someone who is going to have to hand over ownership of their houses and rent it back,” she said. “At the same time it's important to reach some sort of agreement with your mortgage holder.
“If all comes to all – yes I would do this. You have to. You don't have a choice. To rent somewhere is just as expensive.”
Jean, who works in accounts, said that her repayments spiralled towards the €2,000 mark every month at one stage.
And she said that the idea from the |inter-departmental report about freezing the debt could be another way out for some people but didn't go far enough.
“Again it would help – but it's still not getting away from the fact that our houses are worth so much less than they were at the time that we bought them.
“They are not talking about revaluing the houses – that's sad. That's the crux.
“Our salaries were reduced but our mortgages weren't. We're still left with the burden.”
Jean is now on the committee for the Defend Our Homes League and is actively working to raise awareness of those in negative equity.