Mortgage arrears measures to reduce risk of eviction

The Government is finalising wide-ranging measures to deal with the mortgage arrears crisis, including consideration of a scheme that would allow people in significant arrears to stay in their homes.

The package will also involve legislation to weaken the veto banks hold in personal insolvency deals, but court actions will continue against borrowers who refuse to discuss arrears with their lenders.

A key focus has been how to handle households in serious arrears which cannot afford to pay a significant portion of their mortgage.

One approach will be to amend an existing mortgage- to-rent scheme, which involves borrowers losing ownership of their homes, but staying in the properties as rental tenants. Rules governing this scheme, including limits on house values and household income, will be loosened and more resources put in to support these arrangements.

However, it is also understood the Government is considering a separate scheme that would allow borrowers to retain ownership of their properties but offer them ongoing State support to help them pay their mortgages.

Restructure

Under the proposal, banks would first have to agree to restructure the mortgage and in return would receive a State payment to top up repayments by the borrower.

The scheme would have some similarities with the mortgage interest supplement, a support for low-income households. New applications were stopped last year.

In proposals under discussion, the State – possibly via local authorities – would supplement the mortgage payment by paying money directly to the lender, and in return might take a secondary charge on the property.

Final details of the mortgage arrears plan are due to be discussed by senior Ministers and officials in the Economic Management Council next week, and will be announced before the end of the month.

The deal will also involve changes to the personal insolvency rules, which are seen as vehicles for some mortgage borrowers – particularly those with a range of other debts.

Blocking by banks

A new oversight or appeals mechanism is expected to allow borrowers to seek a review in cases where banks block applications for personal insolvency arrangements.

Legislation will also be introduced to weaken the rules under which banks can veto such arrangements, which at the moment require support from lenders holding 65 per cent of the applicant’s debts.

For those in more serious debt, bankruptcy will remain an option – in many cases involving losing home ownership – though it is not clear yet if the three-year bankruptcy period will be cut.

More than 110,000 private homeowners were in mortgage arrears at the end of last year. Senior officials believe arrangements already on offer will deal with many of these cases, but a significant minority of the 38,000 in arrears for more than two years will require extra assistance.

So far, forced repossessions have been at a low level, but more than 8,000 civil bills have been lodged by lenders. While not all of these will lead to actual repossessions, it is clear the numbers are set to rise significantly.