Govt faces major challenge on mortgage debt

Our new government is to hold off putting any more money into the collapsed banking system until the results of crucial stress tests are revealed later this month. It seems a sensible policy to pursue, given that there has been a lack of full transparency on this issue to date. These stress tests will also give an indication of the level of home mortgage impairments there are out there, one of the next major hurdles to be tackled in our overborrowed and deeply indebted country. But, given the increasing number of mortgages in difficulty and the serious level of indebtedness there is in Ireland, it is an area the government will need to reform as soon as possible if the country is not to be hit by a tidal wave of debt defaults. It is estimated that one in 10 homeowners is now struggling to pay their mortgage - this equates to about 60,000 homeowners owing about €103 billion to the banks. About 40 per cent of people in Ireland are described as deeply indebted and many tens of thousands more are struggling to juggle bills and demands from creditors in homes that are worth far less than they paid for them. It is a distressing problem which affects every town and village in this county and throughout the country. Faced with a potential four interest rates rises of 0.25 per cent each time before the end of the year, this is a crisis that is going to get worse before it gets better and is one the Fine Gael/Labour coalition will need to get to grips with as it also tries to deal with the aftermath of the banking catastrophe. With a fear that inflation is about to take off in Europe, the ECB - which sees its mission in life as keeping inflation below two per cent at all costs - Frankfurt gave a worrying signal last week that interest rates could well be on the way up again, having stayed at historic lows of around one per cent for a long time. That spells bad news for Irish borrowers who are already in difficulties, never mind having to cope with further interest rate hikes. As many as half a million may face higher monthly repayments from April onwards if the ECB decides to move on rates. A rise of 0.25 per cent in the mortgage rate on a typical €300,000 loan would mean an additional €45 per month in repayments. For those on standard variable rate mortgages, it will mean rises on top of hikes they have already paid when irish lenders put up their mortgage rates in the past 18 months. The country, prior to the general election, was crying out for stable government and real leadership to bring some certainty to the dire economic situation. Swift steps must now be taken by the new government to help those who are in genuine difficulties, and part of that will be attempting to deal with this difficult mortgage debt issue which threatens to strangle so many homeowners who bought homes at the height of the boom years. As the levels of people in arrears gets ever higher, the need to respond with a comprehensive solution to those facing difficulties becomes ever more urgent. In its programme for government, both Fine Gael and Labour have acknowledged the crisis and has set out steps to help cash-strapped homeowners. The measures include forcing State-supported banks to cut standard variable rates, extra mortgage interest tax relief for some first-time buyers and giving the Money Advice & Budgeting Service (MABS) stronger legal powers to help protect families in danger of losing their home. There is, as Financial Regulator Matthew Elderfield said some time ago, no silver bullet solution to mortgage arrears, because simple debt forgiveness could incentivise some homeowners to breach their obligations, a situation which would only lead to another crippling burden being placed on the shoulders of taxpayers. However, the ending of the boom has left tens of thousands with debts they will never be in a position to repay, and these debts are further poisoning the balance sheets of the banks, delaying any possible economic recovery and causing enormous social misery. It is a situation our government must face up to and deal with fast.