In a recent article, consumer advocate Brendan Burgess addresses the issue of mortgage holders in Ireland and their perceived struggle amidst increasing mortgage rates. Burgess argues that the majority of mortgage holders are not in fact struggling, and that it is important to differentiate between different groups of mortgage holders in order to provide appropriate support.
Burgess begins by acknowledging that mortgage rates have indeed increased, with customers of the main banks paying an average rate of about 4.5%. While this is higher than it was 18 months ago, he highlights that historically speaking, it is not particularly high. In fact, he argues that paying a mortgage is still much cheaper than renting an equivalent home.
Furthermore, Burgess points out that anyone who bought a home in recent years must have been on a higher-than-average income to secure a mortgage in the first place. Additionally, they would have had to save up a deposit of at least €30,000. From this perspective, Burgess suggests that homeowners, even with expensive mortgages, are typically better off in society, and therefore, it does not make sense for the general taxpayer, many of whom are renters, to subsidize them.
However, Burgess recognizes that there are two specific groups of mortgage holders who do require action from the government. The first group consists of customers of vulture funds – companies that purchase distressed loans at a discounted price. Despite assurances from the Central Bank and the Finance Minister that these customers would not be worse off, vulture funds have increased their mortgage rates well above those of mainstream banks. This has caused real hardship, and Burgess argues that offering these customers tax relief or requiring vulture funds to offer the same rates as the banks would be fair and appropriate.
The second group in need of support, according to Burgess, are mortgage holders who have experienced a drop in income and can no longer meet their full mortgage repayments. He emphasizes that unemployment is the main cause of mortgage arrears, not interest rate increases, although the latter can exacerbate the problem. Burgess suggests that in these cases, the first step should be for borrowers to ask their bank to reschedule their mortgages, which can often be resolved through measures such as payment moratoriums, periods of interest-only payments, or extending the mortgage term. The State should only intervene if the borrower’s repayment capacity is permanently impaired and there is a risk of losing their home. In these cases, the borrower should receive help with mortgage repayments, but in the form of a repayable loan, rather than a regular social welfare payment. This loan would be repaid when the borrower’s financial circumstances improve or when the house is eventually sold. Burgess points to the UK’s approach in 2018, where a similar loan system was implemented and resulted in a significant decrease in the number of individuals claiming support.
In conclusion, Burgess argues that it is important to differentiate between different groups of mortgage holders in order to provide appropriate support. While the majority of mortgage holders are not struggling, customers of vulture funds and those who have experienced a drop in income require specific attention from the government. By offering targeted assistance in a repayable loan format, the government can ensure that only those who genuinely need support receive it, without burdening the taxpayer or subsidizing those who are better off.