State must create ‘shared fairness’ in dysfunctional mortgage market

In 2015, 24,134 mortgages drawn down; in 1979, the number was higher.

The 2015 figure includes first time buyers, second time buyers and those buying an investment property but it excludes the 3,000 or so top-up and switcher mortgages since those are ‘non-purchase’ loans.

 

Homeownership

Homeownership is basic human right

In 1979, 24,742 mortgages were drawn down; 608 more than all of last year.

In 1980, the number rose to 26,357 and by 1985 that had risen to 28,060. By 1989, the number rose to 38,580.

What is interesting about the 1980’s is although it was a really bad decade economically and socially, the general trend on mortgages was banks were lending and the overall trend was up (there were a few ‘down’ years).

Equally interesting is the population.

In 1979, there were roughly 1,200,000 fewer people living in Ireland than are living here today; 3.4 Million in ’79 compared to 4.6 Million now.  In other words, the population has grown by 35% between 1979 and today, yet mortgage lending remains stagnant in absolute terms and is actually falling when compared on a per-head-of-population basis.

And the social order was very different also! Larger families and fewer households!

There was also no divorce or no divorcees looking for a new place to live.

All in, the mortgage market today is way out of kilter!

The latest mortgage statistics underline just how bad things are. According to the Banking & Payments Federation Ireland, the average number of mortgage approvals fell by 10.2% to 2,133 between November and January.

Mortgage draw-downs per head of population hover at a 40-year low and mortgage approvals are falling!

Some people might be tempted to applaud the low levels of mortgage drawdown as a good thing; a sign that Ireland will be better off with less mortgage debt. Unfortunately, it’s not quite that simple.

Every economy needs a level of credit availability to help it function. Today’s mortgage market is doing little more than filling a gap left by 30-year old mortgages being paid off at the end of their term.

It would be wrong to place all of the blame at the steps of the commercial banking system. Government too must play a significant role in the provision of credit to consumers. A recent report by Association of Mortgage Expert Advisers cited evidence that the current mortgage landscape discriminates in favour of applicants with ‘wealthy’ parents.

For political parties that canvassed on a platform of ‘shared fairness’ in the recent  General Election, the current dysfunctional mortgage market is an obvious target for remedy.

A State-sponsored (or EU-sponsored) mortgage fund operated through An Post and select Credit Unions would be a great starting point. It could be modelled on Fannie Mae in the US which acts as guarantor to encourage responsible mortgage lending. Its purpose would be to serve society on a not-for-profit basis. Surpluses would be re-invested back into the lending system.

Organisations such as An Post and select credit unions would act as distributors of those mortgage products and get remunerated for their services, including marketing, underwriting, processing, disbursing and even servicing of the loans. But the ultimate guarantor would be the State (or the EU).

The announcement by St. Raphael’s Credit Union that it is to offer mortgages to its members is a positive step. Hopefully, other credit unions will soon follow their lead. Ireland badly needs more providers offering more products to more people within a framework of sound underwriting and long-term sustainability.

Homeownership remains one of the four pillars of personal wealth accumulation and with sharp increases in rents across the Dublin region (and other cities and towns), the long-term argument for homeownership has never been as strong.

It is in situations such as this, where a dysfunctional mortgage market available primarily through the commercial banking system is not up to the task that the State should step in and serve the greater good!

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