This briefing summarises recent cases, developments and trends relevant to ongoing efforts to resolve the mortgage arrears crisis. Mortgage arrears and repossessions are a key area of focus in the 2016 Programme for Partnership Government.
Two judgments, published just before the Courts' Summer recess, are of particular interest.
In Resolving the Mortgage Arrears Crisis: Vol 2/2016, we highlighted two conflicting High Court decisions from 2015 relating to the jurisdiction of the Circuit Court in respect of possession proceedings.
The Court of Appeal's judgment in Permanent TSB Plc v Langan, delivered on 28 July 2016, has clarified the position. In the judgment, the Court of Appeal noted that the Circuit Court's current jurisdiction to deal with land-related matters is limited to cases where the rateable valuation of the relevant property does not exceed €253.95 (meaning that the property must actually be rateable for the Circuit Court to have jurisdiction). As a result, the Circuit Court did not have jurisdiction as the six properties in this case were not rateable.
While the judgment in this case related to possession orders in respect of domestic premises, Hogan J noted that his conclusions would lead to "unfortunate and unintended" results and that his judgment "has even the more serious consequence that the general jurisdiction of the Circuit Court to deal with property disputes (i.e. other than those concerning applications for possession) concerning domestic dwellings is, at least, now open to question".
For further details on the impact of this decision, read our Client Briefing: Possession Proceedings for Residential Properties - Important Update.
On 24 October, the Government published the Courts Bill 2016 (and related Explanatory Memorandum) which is designed to deal with the consequences of this Court of Appeal ruling – the intention is that the Circuit Court's jurisdiction will be based on the market value of the property concerned, rather than its rateable valuation. Where the market value is less than €3,000,000, it is proposed that the Circuit Court will have jurisdiction. We will issue a more detailed client briefing on this legislation as it progresses.
Registered land and the appointment of receivers
In Harrington v Gulland Property Finance Limited, the High Court granted an interlocutory injunction restraining a receiver from taking possession of certain registered properties owned by the Harringtons. The Court held that the Harringtons had made out an arguable case that the receiver was not validly appointed because Gulland – the party purporting to make the appointment having acquired the loans and related charge from IBRC – was not yet registered as owner of that charge in the Land Registry.
For further details, read our Client Briefing: Loan Sales: Important judgment in relation to registered land.
The Abhaile initiative and the Scheme of Aid and Advice on Home Mortgage Arrears
In August, the Department of Justice and Equality published an outline of the Government's Scheme of Aid and Advice on Home Mortgage Arrears. The Scheme is aimed at ensuring that those in mortgage arrears can access free, independent financial and legal advice (the Scheme provides vouchers to eligible borrowers to enable them to obtain that advice). The Scheme is the first element of the Abhaile scheme, officially launched by the Tánaiste on 3 October 2016.
Under the Scheme, a borrower in mortgage arrears will contact MABS in the first instance and, if the borrower is eligible, MABS will direct that borrower to the relevant advisor. Eligible borrowers are those who are:
- in mortgage arrears (in respect of their PDH); and
- at risk of losing their home.
Five different options are available to eligible borrowers under the Scheme depending on the type of assistance that the borrower needs. Advice will be available from personal insolvency practitioners, accountants and solicitors, and support will also be provided to a borrower who decides to appeal his creditors' decision to reject a proposal for a Personal Insolvency Arrangement.
By 30 September, MABS had already issued 1,340 vouchers to eligible borrowers for financial or legal advice, or for access to legal aid, and work is ongoing to develop the panels of advisors. The Scheme will run for 3 years at a cost of €15 million.
The second element of the Abhaile scheme, an information campaign managed by the Citizens Information Board, will be launched over the coming weeks, with the aim of promoting the scheme to those who need access to it.
Lorcan O'Connor, Director of the Insolvency Service of Ireland (ISI), noted that he expected the Abhaile scheme to lead to a further increase in the number of debt relief applications to the ISI.
Mortgage lending regulations
Call for submissions
As mentioned in Resolving the Mortgage Arrears Crisis: Vol 2/2016, the Central Bank recently published a call for submissions (which closed on 1 September 2016), seeking views on its loan-to-value (LTV) and loan-to-income (LTI) regulations in respect of residential mortgage lending.
Approach of Central Bank
Fifty submissions were received and the results of the Central Bank's review, together with a feedback statement, will be published later this month. The Deputy Governor of the Central Bank, Sharon Donnery, in a recent speech to the Dublin Economic Workshop Annual Economic Policy Conference, emphasised that any material changes to the regulations would require a significant evidence threshold and that it "...would be unwise to seek to adjust the rules in response to minor and temporary fluctuations in the state of the financial cycle". In a subsequent interview with Bloomberg TV, she noted that no decision had yet been made as to whether the regulations would be amended, but highlighted that frequent tweaking of the regulations could undermine the stability that they are designed to provide - again, this indicates that the Central Bank is only likely to announce changes to the regulations if presented with strong evidence to justify change.
Department of Finance submission
Separately, the Department of Finance published its response to the call for evidence, asking the Central Bank to consider the following:
- the introduction of a 'capacity to pay' test which would take into account a borrower's strong rental payment record – this recommendation arose from concerns that borrowers with strong rental payment records in respect of high rents could find it difficult to save for a mortgage deposit as a result of making those payments);
- increasing the allowances given to lenders in the existing regulations by allowing lenders to advance 20% (rather than 15%) of PDH loans above the LTV limit, and 25% (rather than 20%) above the LTI limit, with those increased allowances being targeted at first time buyers; and
- increasing the existing 90% LTV limit for first time buyers from €220,000 to €320,000.
The Economic and Social Research Institute, in its Autumn 2016 Quarterly Economic Commentary, analysed the implications of the Central Bank's LTV and LTI limits on the Irish housing and credit sector. It noted that the limits had caused lending in the Irish market to contract, but that the impact on the housing sector had, to date, been negligible. However, it forecast (over a longer period of time) that housing supply will decrease more significantly than it would have if the regulations had not been introduced.
On 12 September, the European Central Bank (ECB) published (for consultation) its draft guidance to banks on non-performing loans (NPLs). It sets out several 'best practices' that the ECB will expect to see followed, and recommends that banks with a high level of NPLs establish clear strategies to manage and reduce their NPL levels. The draft also sets out various options on viable forbearance solutions, and banks will be required to set targets for reducing NPL levels. A useful summary of the draft guidance is here. As part of country-specific information published in connection with the draft guidance, the ECB noted in respect of Ireland that:
- in December 2015, Ireland had a total NPL ratio of 19% (18% of which related to household debt);
- the high volume of cases going through the Irish court process, and the timelines associated with possession proceedings for PDH properties are a key challenge for Irish banks.
The consultation closes on 15 November 2016. Once the guidance is finalised, it will not be legally binding but banks will be required to explain (on request by the ECB) any substantial deviations from the guidance.
Variable mortgage rates
On 21 July 2016, the Central Bank announced that holders of variable rate mortgages will be granted further protections from 1 February 2017. The new protections will benefit personal consumers (i.e. individuals acting outside their trade, business or profession) in relation to variable rate mortgages (excluding tracker mortgages). For further information, read our Client Briefing: Variable rate mortgage holders given further protection.
The Central Bank's most recent Retail Interest Rate Statistics contained interesting information regarding variable rate mortgage loans in the Irish market. In particular:
- interest rates on variable mortgage loans for house purchases are among the highest in Europe, averaging 3% in August 2016 (the equivalent euro rate is 1.87%); and
- two-thirds of all new mortgage loans for PDHs and BTLs in Ireland from August 2015 to August 2016 were on variable rates – significantly above the European average.
In a statement to The Irish Times earlier this month, the Central Bank indicated that it had begun research into the area of mortgage switching. It expects to complete this work early in 2017, and will use the results to decide whether any specific measures need to be introduced in this area.
The statistics published by the ISI on 17 October 2016 for Q3 2016 showed a 134% increase (when compared to Q3 2015) in the numbers applying for Personal Insolvency Arrangements (PIAs), a 20% increase (again, compared to the same quarter last year) in the number of protective certificates granted, but a 3% decrease in the number of PIAs approved (whether by the creditors or by the Court).
The statistics on residential mortgage arrears and repossession relating to the second quarter of 2016 have recently been released by the Central Bank. We are still awaiting statistics for this period from the Courts Service of Ireland.
In terms of the key trends, these are as follows:
11% of all residential mortgage accounts continue to be in arrears at the end of June 2016, marking the twelfth consecutive quarter of decline. A total of 82,092 of residential mortgage accounts were in arrears at the end of June 2016, being a decline of 4.5% relative to the previous quarter. The rate at which residential mortgage accounts in arrears are declining has increased relative to the decline of 2.6% recorded in Q1 2016.
The second quarter of 2016 saw 1,243 legal proceedings issued in the Irish Courts for the enforcement of security in respect of PDHs; a notable decrease on the 1,895 proceedings issued in first quarter of 2016. The 1,243 proceedings issued marks a 51% decrease in the number of proceedings issued as against the same period in 2015, when 2,533 proceedings were issued.
PDHs actually repossessed
The total number of PDHs ultimately repossessed on foot of Court orders made in the High Court and Circuit Court in the second quarter of 2016 came to 101. This is lower than any quarter in 2015 and represents a 27.4% decrease on Q1 2016.
The continuing decline in the level of arrears is very positive. However, the mortgage arrears issue remains at the top of the political and regulatory agenda, and the approach that the Central Bank ultimately decides to take following its call for evidence on its mortgage lending regulations is likely to receive significant coverage. We will issue a further client briefing once the Central Bank has confirmed whether it intends to introduce changes.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.