Updated: 12/07/17 : 06:24:35
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29,000 Irish homes face repossession within four years

The number of homeless people could double and cost the state €2.4 billion over the next four years if action is not taken to tackle mortgage arrears, an expert has warned.

The Times (Irish Edition) reports that the European Central Bank has encouraged financial institutions to sell non-performing loans given that nearly 60,000 Irish mortgages were in long-term arrears at the end of last year.

Experts said that banks may evict people with long-term arrears which are considered difficult to resolve, or could sell their home loans to investment firms who may evict them.

Opposition parties have tried to pre-empt any uncontrolled disposal of the mortgages and urged the government to make a plan. If mortgages were sold in large tranches it could cause shocks in the rental sector, they said.

Fianna Fáil is drawing up a bill that would establish a housing co-op to buy the struggling mortgages and keep people in their homes. Michael McGrath, the party’s finance spokesman, will publish a bill today to establish a mortgage resolution office. Sinn Féin will support it and the bill is expected to pass this week.

'Uncontrolled disposal'

Mel Reynolds, a housing expert, said that thousands more people could become homeless and rents could jump if the government failed to develop a strategy. Even if a small number of buy-to-let mortgages in arrears were called in the rental market could be significantly distorted. He also said that up to 29,000 homes could be repossessed over the next four years. Based on figures from the Dublin homeless executive it costs the state €59,000 to house a family for a year.

“Given the lack of any structured disposal plan for arrears mortgages, an uncontrolled disposal by various banks of large tranches of mortgages in arrears could lead to double-digit increases in rent inflation and significant increases in homelessness,” Mr Reynolds said.

He estimated that an additional 4,000 families could become homeless every year over the next five years, resulting in an annual cost of €227 million. By 2021 the government could end up spending an extra €88 million on homeless assistance payments and €906 million to house homeless families annually.

Philip O’Sullivan, chief economist at Investec Ireland, said that banks had made progress in reducing their non-performing loans but that the momentum had slowed. “We do have a very clear concentration of the arrears problem in the loans that are more than two years in arrears,” he said. “There are wider costs for the exchequer in terms of if people were to lose their home and have to be housed by the state, and obviously there is cost in that. It’s something policymakers have to look at.”

Banks have cut their non-performing loans from an average of 27 per cent of their loan books in 2013 to 14.2 per cent at the end of last year. Mr O’Sullivan said that banks had been successful in using restructuring solutions and that repossessions would be a “last resort”.

Legal proceedings

Patrick O’Sullivan, a retired fellow from the Institute of Bankers, said that a co-coperative should be established to buy up problematic mortgages.

“If you think we have a problem at the minute, when interest rates start to incrementally increase a lot of people who are just about able to keep payments up to date presently will be unable to with a 2 per cent increase, which wouldn’t be out of order over a period of 12 months,” he said.

During the first quarter of the year legal proceedings were issued in relation to 1,645 mortgages. The courts granted an order for repossession or sale of the property in 278 cases.

Mr McGrath’s bill, which will be debated in the Dáil today, would set up a resolution office to deal with problematic mortgages associated with family homes. It would instruct the lender to find a sustainable solution. Separately, a bill has been published that would establish a not-for-profit entity to buy distressed mortgages.

The National Housing Co-op Bill 2017 was presented before the Oireachtas finance committee last month by John McGuinness, the Fianna Fáil TD.

The bill would give the co-op a first option on the mortgages before they were offered to so-called vulture funds. The co-op would raise money from institutions such as the European Investment Bank at 1.75 per cent, much lower than sub-prime rates charged by the banks on those in arrears. The debt would then be restructured.

The institution would be “off balance sheet”, meaning there would be no cost to the government to set it up. It would fill the space occupied by investment firms buying distressed home loans.

About €5 billion would need to be raised to purchase the €16.5 billion of mortgages in long-term arrears.

• The level of child homelessness has risen by more than 300 this year, according to the Department of Housing. A total of 2,777 children were homeless at the end of May.

The Times (Irish Edition)