Mortgage Arrears – Any Solutions?

We are currently in an era where it would appear that report after report is being generated to deal with the myriad of problems we are encountering both at an economic and social level in this country. The most recent of these reports is the Inter Departmental Mortgage Arrears Working Group otherwise known as the Keane Report. As the title suggests, it is a work in progress in terms of dealing with mortgage arrears in this country. The brief for the Keane group was to focus on home owner mortgages as opposed to buy to let mortgages. Therefore this would not cover the category of people who would have taken out mortgages for the purpose of purchasing an investment property. The challenge is to keep people in their homes where appropriate, to reduce the burden on home owners facing debt servicing difficulties and to minimise the cost to the State.
The report confirms that approximately 45,000 households are in 90 days plus arrears of which approximately 32,000 households are in 180 days plus arrears.
The report is not providing an easy solution to all in arrears as one of the guiding principles surrounding it is that those who can discharge their mortgage obligations must do so and a blanket debt forgiveness scheme is not recommended. In fact, the key approach is on a case by case basis.
The report also confirms that the factors impacting mortgage arrears include affordability, negative equity and future prospects. In other words, if there is a change in somebody’s employment that is a key factor behind mortgage arrears together with the fact that when a property falls into negative equity, the potential solution narrows and age and how many future years of earning capacity an individual has is also an important consideration.
In summary, the group recommends the introduction of two mortgage to rent schemes aimed at those people who would qualify for social housing if they lost their home and where their house is appropriate to social housing. The schemes are being developed as follows;

  1. Utilising an approved housing body to acquire the property.
  2. A long term lease from the banks directly to the Local Authorities.

The first of these options would involve the house being sold by the mortgage holder to the Approved Housing Body and the mortgage holder will rent the house from the Approved Housing Body at an agreed means tested rate.
The second option is where the house is surrendered by the owner to the mortgage lender and the mortgage lender would provide a long term lease to the Local Authority and the original owner will rent the house from the Local Authority at an agreed means tested rate.
It is concluded by the group that the advantages would be that the mortgage holder stays in their existing home and would avoid unnecessary market transactions while the advantages to the State would be that there would be less people on housing lists. It is also clear from the report that the advantages to the mortgage lender would be that there would be an avoidance of repossession cases together with the associated legal costs.
Another option which is discussed in the report is that certain mortgage holders who are in mortgage difficulty with high value or large properties that they may be able to trade down to a lower value house and carry the negative equity with them.
While the report has been welcomed in some quarters, it has also been met with extensive criticism particularly on the part of a group known as New Beginnings which is a group comprising of lawyers and business people who are seeking to provide advice to individuals with debt difficulties. The argument by this group is that 35% maximum of the income of any one individual with mortgage difficulties should be used towards paying back their mortgage debt.
There is no doubt whatsoever that this debate will continue and whether the Keane recommendations will be implemented remains to be seen. Any individual with mortgage arrears concerns should of course seek legal advice where they are in receipt of any documentation from their lender in relation to possible legal proceedings. It is very often too late in the day when a householder decides to approach their legal advisors when the bank is on the verge of repossession.
This topic will be revisited in future articles and putting yourself in the know of what recommendations are out there is of extreme importance also.
-Martina Larkin