Thursday 18 January 2018

Writing off negative equity 'would ease crisis'

Almost 33,500 mortgages on family homes are in arrears of more than two years, with outstanding debts totalling €7.5bn. Stock picture
Almost 33,500 mortgages on family homes are in arrears of more than two years, with outstanding debts totalling €7.5bn. Stock picture
Paul Melia

Paul Melia

Homeowners and landlords unable to pay their mortgages could see the negative equity portion of their loans written off to help restore the property market to normality, under proposals outlined by the head of the Government's Housing Agency.

John O'Connor said banks needed to "get real" and write off billions of euro of debt for homeowners and buy-to-let landlords, instead of waiting for prices to rise or selling non-performing loans to vulture funds.

He warned that house prices and rents were unlikely to stabilise for another three years - and then only if the banks took radical action to reduce debt burdens.

Part of this would require loans on development land to be written down to reflect the market price of the site today. This would help boost housing output, by reducing the cost of land needed to build homes.

However, Mr O'Connor's comments will cause fury among mortgage holders who have struggled in recent years to repay loans, and not fallen into arrears. It will also fuel concerns about moral hazard - where those in arrears who refuse to engage with their lenders could be seen to benefit from any such arrangement.

Almost 33,500 mortgages on family homes are in arrears of more than two years, with outstanding debts totalling €7.5bn. Another 14,000 buy-to-let loans were also in arrears of more than two years, totalling €4.1bn.

In addition, thousands of restructured mortgages were not performing. But few are repossessed. The most recent figures show that the number of legal proceedings issued by banks to repossess homes has halved in the last two years. Some 3,665 proceedings were issued last year, according to the Courts Service.

Read More: 'House prices and rents won't stabilise for up to three years'

In an interview with the Irish Independent, Mr O'Connor said the priority had to be dealing with loan arrears to help tackle the housing crisis. Only in cases where it was proved debtors could not pay should any write-down be considered.

He said for homeowners struggling to repay their mortgages, the debt should be written down to a sustainable level. This would avoid families being evicted.

For landlords in arrears, the loan should also be written down but instead of the properties being sold to private investors, they should instead be sold on the open market, boosting supply to first-time buyers and others hoping to trade up.

"We can't have a situation where people (banks) are waiting for land prices or house prices to go up before moving," he said.

"We need to address the mortgage arrears. In a lot of cases, people can afford to repay a mortgage based on the current value of the house. Leaving aside the moral hazard, banks just have to write off the residual debt.

"Why sell a loan to an investor when the family in the house can afford to repay the value of the mortgage you're selling?

"On the buy-to-let properties, writing off the residual debt is more difficult.

"In these cases, the properties need to be sold. It's better they're sold on the open market.

"People talk about the lack of supply.

"Sell the vacant properties. The market needs housing."

Mr O'Connor's call to lance the boil and deal with the arrears crisis once and for all comes as the European Central Bank is piling pressure on banks across the eurozone to deal with non-performing loans.

"The banks have provisioned for the debt.

"The European Central Bank is pushing them to address the non-performing loans. They're in the process of taking the hit. But just move and take it now," he added.

The ongoing housing crisis and lack of new units being delivered is fuelling price hikes, which rose 11pc in the last year.

Irish Independent

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