Brian Hayes MEP

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A Grand Bargain on Mortgages is Needed

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Article by Brian Hayes MEP which appeared in the Irish Independent on Tuesday 18th November 2014

Strong leadership is needed to resolve some of the big mortgage legacy issues weighing so heavily on this country. I am proposing a Grand Bargain between all the stakeholders – banks, mortgages holders, the ECB, the Central Bank, the government and future borrowers. Resolving this issue is actually more important than any potential deal on bank recapitalisation. Getting this right can unlock the pent-up demand that has for too long lain moribund in our struggling economy.

About 126,000 mortgages holders are in varying degrees of arrears. A third of the value of all non-performing bank loans relates to residential mortgages. At the same time, banks have around €50bn of loss-making tracker mortgages on their books. Those on variable mortgages are not only paying for the sins of the banks, but they are holding back the economy because of depressed spending power. They are the group being fleeced by the banks. Having variable interest rates two percentage points higher than continental Europe is one of the biggest rip-offs in living memory.

Meanwhile, the Central Bank wants to set the bar so high for first-time buyers that, according to Ulster Bank, 60pc-plus wouldn’t get past the new deposit requirement. My grand bargain is straight-forward. The ECB holds the key to my proposal. The ECB needs to recognise it has an obligation to this country. It was the ECB that was instrumental in preventing both this and the last government from obliging senior bank bondholders to share losses when the banks collapsed.

Instead, Irish taxpayers were obliged to pick up the full bill. Justice and fairness demand a response. The time is now right for the ECB to step up to the plate and put things right. Helping us fix the mortgage problem is the one thing it can do. By taking the tracker loans from Irish banks on to its own balance sheet, the ECB can unlock this problem.

Recently the ECB has established through its Asset Backed Security programme a vehicle to do just that. Because tracker mortgages are so favourable to the borrowers, the default rate on these mortgages is low. The ECB would be taking on a very low risk by taking tracker mortgages on to its balance sheet and of course it would have zero financing cost. Removing tracker mortgages from the books of Irish banks would improve their profitability and free up capital for new lending.

Improving the profitability of Irish banks will in turn increase the value of the government’s shareholding in these banks. As part of the ‘Grand Bargain’, the banks should be obliged to agree that the interest rate on existing variable mortgages will be set at an agreed percentage above the ECB rate. International interest rates are now at historically low levels. It is possible for the banks to borrow 10-year money on the international markets or from the ECB at less than 2pc. In turn, 10-year fixed interest mortgages should be made available at 3.5pc or even less. That should be also part of the deal.

Making long-term fixed interest mortgages the norm will introduce a huge element of stability and certainty into the sector. It will be a very powerful tool in reducing future risk to bank balance sheets. I believe the proposal from the Central Bank to require a 20pc deposit is profoundly unfair to first-time buyers. That bias has to be removed when the final proposal is outlined.


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