Hi °C | Lo °C Few economists can write about mortgage arrears from personal experience. But I can. In September 1985 as a young teenager in a household with no one at work, I recall how a rather brutal dilemma presented itself: Do we pay the mortgage? Or keep the lights on. There not being much point in paying electricity for a house you'll be evicted from, the choice was clear. We spent the next 10 months in darkness and cold with no electricity.
According to the Irish League of Credit Unions 'What's Left' index, many of us are approaching those kinds of choices: some 1.8 million have €100 left after "essential bills" are met. The figure overstates the problem. But as accurate forensic data from the Central Bank shows, the problem hardly needs overstating: as of December, 143,851 residential mortgages and 37,955 buy-to-let mortgages were in arrears. In each category, roughly two-thirds were in arrears for more than 90 days.
But are these people who can't pay or who just won't? While there are clear-cut cases – not being able to pay the electricity bill is clearly a 'can't pay' situation – there are many grey areas. What about not being able to pay health insurance if you have a sick child? Or keeping the car you need to commute to work? Even in less clear cases banks have a responsibility to engage with Matthew Elderfield's call this week to restructure mortgages. Spiritual support for this approach has come from International Monetary Fund boss Christine Lagarde. While in Dublin last week, she pointed out how if Irish banks borrowed too much, it is because other banks lent too much to them. The same principle of symmetry applies to Irish mortgage borrowers and Irish banks.
But there is another kind of symmetry: for every headache mortgage arrears cause borrowers, it causes an equal headache for banks. There is a staggering €17.5bn outstanding in private residential arrears. On top of a further €8.4bn for the buy-to-let sector, this could blow a hole in our banks' balance sheets and prevent their return to the bond markets.
This island hasn't got much slack from the European Central Bank on the question of substantive help for our banks. But Cyprus is about to get the go-ahead for a bank write-down on a bailout worth some €10bn. Again the principle of symmetry applies: as soon as it is used to capitalise Cypriot banks, the principle of collective assistance must be symmetrically and retrospectively applied to ensure that the European Stability Mechanism (ESM) is also tapped to ensure that Irish banks are recapitalised. That in turn should ease the pressure of the banks in getting tough with those in arrears.
Is a higher rate of evictions justified? Department of Finance boss John Moran seemed to suggest this week that it was. He was right to speak of Ireland's "unnaturally low" level of evictions. But this is only half of a story that since the breakdown of financial regulation in 2004 has made Ireland a dangerous place to draw sweeping comparisons with countries like France or Germany. If evictions are "unnaturally low" here compared with those countries, that is because compared with those countries housing policy incompetence here was "unnaturally high".
In France and Germany land prices are controlled, development is largely immune from planning corruption or distorting financial incentives like builders levies. Mortgage lending is also based on fixed mortgage rates that keep prices stable. Nor did financial regulators allow banks to offer 110 per cent mortgages. France and Germany also offer their citizens an alternative to home ownership: high-quality rental with lifetime tenure. So arguing for the introduction of higher evictions and property taxes on the basis that "other countries have them" is a bit like saying we should have Mediterranean snakes as well.
Not that the French and German governments were immune from blame. Far from it. It was their governments that tore up the very safeguard of the euro: the Stability Pact. And it was the powerful countries in the eurozone whose central banks were most responsible for undermining the sound policy of the Bundesbank, resulting in interest rates that were too low not just for Ireland but the whole of the eurozone.
So the blame for Ireland's mortgage crisis – while certainly substantially our own – also carries a significant non-Irish component.
The final piece in the mortgage arrears puzzle was provided this week by the NTMA – not only was the full €5bn bond auction offered to the markets snapped up but was oversubscribed two-and-a-half times. Thanks to adept management of our debt, we are now back in the debt markets. And at good interest rates too.
Up to now arguments against substantive assistance to our banks from Europe has rested on the fear of contagion. This week the NTMA proved that those fears are now receding. In the coming months the deal with Cyprus will create a precedent for ESM assistance for our banks. And as any fair assessment of the Irish mortgage market tragedy will show, the State – and the institutions of Europe – are as responsible for the arrears crisis as those suffering its fate and should act to help.
Marc Coleman presents 'Coleman at Large' each Tuesday and Wednesday from 10pm on Newstalk 106-108fm @marccpoleman
Irish Independent
