Mortgage to Shared Equity Scheme far superior to Mortgage Interest Supplement

At the last count, one in nine of all Irish mortgages were in arrears. That statistic does not even account for those many homeowners who are barely making their payments or are likely to fall into arrears in the near future. This crisis has inspired a passionate response. Those in debt are desperate for a solution and call for Government action while others condemn the idea of forgiving the debt of some while most of the populace are still struggling with other types of bills. There is no answer that will satisfy everyone but there is a potential solution that has been inexplicably ignored by the Irish Government. Shared equity schemes offer a realistic remedy to the country’s mortgage arrears issues.

Mortgage to shared equity schemes allow home owners who can no longer afford their mortgage to reduce their level of secured debt while retaining a stake in their home. Such a scheme sees the Government take on a portion of the mortgage and in return gets a stake in the property’s equity. This does exist in Ireland at some level, in the form of the Shared Ownership Scheme. However this is aimed at first-time buyers only and so does nothing to address the current problem of existing mortgages that have moved into arrears.

Scotland’s Mortgage to Shared Equity scheme operating under their Home Owners’ Support Fund is a model example. The scheme was established in 2009 and assists homeowners who are in danger of having their homes repossessed. It involves the Scottish Government taking a financial stake in a mortgagee’s property. The individual still owns their home and continues to have responsibility for maintaining and insuring it. But they will have reduced the amount they must pay their lender every month, since the Government will now pay a portion of the mortgage proportionate to the equity stake they have taken on.

In my time working with mortgage arrears lobbyists, if ever a suggestion of a shared equity scheme in an Irish context was floated it was shot down as too expensive for the state to absorb. This is a foolish response. Currently the only relief available for people in mortgage arrears is Mortgage Interest Supplement, a payment operated by the Department of Social Welfare. MIS was enacted in 2007 and not designed to bear the volume of mortgage arrears cases we are seeing today. Envisaged as a temporary form of assistance, in some cases MIS has now been paying the interest of certain mortgages for more than five years. The most scandalous aspect of MIS is that all payments go directly into the pockets of the banks; the state gains nothing. This is wasted money.

A mortgage to equity scheme would at least gives the State a portion of a property’s equity in return for taking on the proportional shared debt. Thus when the property is later sold or redeemed back by the original mortgage-holder, the state gets the benefit of this equity. Obviously this may be reduced in cases of negative equity but the State, unlike individual debtors, will not be forced to sell at a low point in the market. They have the liquidity to retain their equity in these properties for an extended period, say ten or twenty years, by which time property prices will hopefully have stabilized and increased.

The number of people accessing MIS increased by more than 260 percent between 2008 and 2010 to 15,100 families, according to the interim report of the Mortgage Arrears and Personal Debt Review Group. In 2009, the supplement cost more than €60 million, compared to €12 million in 2007. In 2010 the average payment was in the region of €367 per month. This is the definition of expensive since these payments are essentially money down the drain. It is time for the Government to scrap this supplement and look to the Scottish example by providing a more viable solution in the form of a mortgage to equity scheme.