Help at hand for over-indebted householders?

Measures to assist homeowners struggling to repay their mortgages should be in place by the summer, according to Minister for Communications Eamon Ryan. These measures will comprise a range of actions based on the advice of an expert panel to be appointed by the Government on dealing with mortgage debt and to help alleviate the desperate situation some homeowners currently find themselves in. The Financial Regulator in December 2009 reported that 3.3 per cent of all mortgages, representing over 26,000 households, were in arrears. There are about 8,000 cases where a formal demand has been made for a property or legal proceedings have been issued by a financial institution. Those figures are likely to grow as we move further into 2010, particularly as building societies and other financial institutions look to increase their interest rates. Permanent TSB this week increased its mortgage rate by half of one per cent, taking its variable rate to 3.69 per cent, having previously raised it in July 2009. Others cannot be far behind and the European Central Bank is almost certain to revise its benchmark rate upwards in either the third or fourth quarter of this year. That will spell further trouble for heavily indebted householders already struggling to repay mortgages far larger than their homes are worth. Following a decade-long credit spree, Irish households are among the most indebted in the developed world. In 1995, household debt as a percentage of disposable income was less than 50 per cent. Today, it averages 175 per cent and close to 200,000 homes are in negative equity. Despite this, banks which have been bailed out to the tune of billions of euro of taxpayers' money, are thought to be reluctant to move to repossess properties because of the further damage such impairments would do to their balance sheets at a time when they are under major financial stress and preparing to transfer so-called toxic assets to Nama. So there is some breathing space now to try and get to grips with the problems coming down the track on personal and household debt. All this property-related debt is storing up a major problem for the future when looked at in conjunction with the rising numbers of unemployed people and the large number of small investors who bought properties to let in the boom, in the belief that good rental income would continue to cover their mortgage repayments. Falling rents and large number of non-national workers departing these shores to return to Riga, Vilnius and Krakow means the rental market looks like it may well be in the doldrums for some time yet. According to the Free Legal Advice Centres (FLAC), urgent action in this area has been needed for some time and it welcomed the sense of urgency apparent in Minister Ryan's statement at the weekend that the Government was planning to focus on this debt issue. FLAC says the situation of those who are over-indebted is difficult enough without the added complication of the available solutions being entirely inadequate. A greater range of remedies to assist those struggling under the burden of over-indebtedness is needed, it adds. The Government's response to date has been to point people in the direction of the Financial Regulator's code of conduct on mortgage arrears or the Money Advice & Budgeting Service (MABS). Neither avenue is an adequate response to the crisis that is now looming - indeed, MABS itself is under-resourced and oversubscribed as it struggles to meet the demands being placed upon it by those who find themselves in financial difficulty. That is why the Government's solution to this growing crisis must be comprehensive and include new mechanisms to be put in place to protect families who are in real danger of losing their homes. It is also imperative that Government action be swift and this means that measures which have been successfully trialled internationally, such as the capacity to remodel and revise existing loans to take account of changed circumstances and reckless lending, as well as innovations such as a debt for equity swap, all be considered.