The next Government must introduce structural measures to help those struggling to pay their mortgages. That’s according to Threshold, the national housing organisation, which today (07.02.11) outlined its pre-election submission to all political parties.
Threshold is calling on the next Government to introduce a ‘mortgage to shared equity’ scheme, whereby the State would purchase dwellings and rent them back to the former owners, who could later re-purchase their dwelling if their financial circumstances improved.
According to Aideen Hayden, Chairperson of Threshold, there are a number of justifications for introducing such a scheme.
“There are over 40,000 households in arrears on their mortgage repayments for more than 90 days, and over 10 per cent of mortgage-holders are facing significant difficulties with repayments,” she said. “The next Government must move beyond existing temporary measures – such as the moratorium on repossessions – and introduce structural reforms.
“This approach makes sense for a number of reasons. Firstly, the cost of maintaining households in owner-occupation is likely to be lower than that of re-housing people or maintaining them for years on the rent supplement scheme.
“Secondly, the Government has spent vast sums bailing out the banks, so it’s only fair that individuals who are struggling should receive some help too. After all, failure in the regulation of financial institutions and the availability of flawed financial products – such as sub-prime mortgages – contributed to the current crisis.
“The State is spending over €60 million on the mortgage interest supplement scheme and over €500 million on rent supplement to help people with their housing costs. These figures have increased dramatically since the onset of the recession and they are only likely to increase further over the coming years. Therefore, it’s crucial that systemic measures are introduced to deal with the root causes of our housing problems.”
Under the ‘mortgage to shared equity’ scheme proposed by Threshold, the State would purchase dwellings at a significant discount from the financial institutions concerned. The home-buyer would remain in their property and pay an affordable mortgage to the State, based on a reduced equity stake in the property. They could then increase their stake and their mortgage payment as their financial circumstances improved. The full amount of the original mortgage would remain payable to the State, which would therefore benefit from the discount received from the financial institution.
“The precarious position of many distressed homeowners is a great uncertainty facing the next Government,” said Aideen Hayden. “We believe our proposal is more cost-effective than bearing the cost of re-housing people or the consequences of a large amount of foreclosures.
“The advantages of our scheme are that it allows home-owners to remain in their properties; to benefit from more favourable terms when compared to sub-prime lenders; and to have access to a re-entry mechanism to full or partial home ownership in the future.
“Advantages for the State would include establishing a credible instrument to support marginal home-owners; introducing a stabilising influence on the volatile housing market; and securing good fiscal value with the prospect of future gains – if the mortgage is fully repaid, the State will benefit from the difference between the discounted amount paid to the lender and the full value of the loan.
“The advantage to the lending institution is they get out from under the mortgage product, even if it’s at a loss. So although sub-prime lenders, for example, can’t be compelled to sell loans to the State, it would definitely be in their best interests.
“We have submitted our proposal to all political parties in the run-up to the general election, and we look forward to working with the next Government to ensure struggling homeowners receive practical assistance that will address their problems on a long-term basis.”
Threshold was founded in 1978 and is a not-for-profit organisation whose aim is to secure a right to housing, particularly for households experiencing the problems of poverty and exclusion. Its main concentration of work is within the rented sector. The organisation operates a national office, based in Dublin, and three regional offices. It provides advice and representation to over 20,000 people each year. Further information is available at www.threshold.ie.