Labour to reveal state-backed mortgages plan

A RADICAL plan for state-backed mortgages to help struggling borrowers buy their own home is expected to be revealed by the Labour Party in the coming weeks.

The scheme would include a robust assessment of home-buyers whose mortgage repayments to banks would be guaranteed by a new state agency if they ran into financial difficulties.

Banks and the Financial Regulator have already privately signalled support for the Labour plan.

It also includes a proposal for banks to pool bundles of the state-guaranteed mortgages to create bonds that would be sold to investors on the international markets.

Party strategists maintain the mortgage proposals provide security for both home-buyers and the banks and, if implemented, would be a minimal risk and cost to the state.

TD Ciarán Lynch, who has drawn up the Principle Residence Ownership Plan (PROP), said the absence of government plans and fear among buyers and lenders had brought house-buying to a halt.

Under PROP, the system would mainly support buyers of “family” or owner-occupied homes.

The party housing spokesman said under the scheme the state would guarantee mortgages once applicants had passed a strict screening process on their ability to repay loans, as well as their credit and employment history.

Labour is proposing that a body called the National Home Mortgage Agency (NHMA) would operate between the PROP mortgage holder and lending institutions to guarantee repayments.

But mortgage holders would be required to sign up to income protection as well as property and life insurance, which would go towards funding the cost of the guarantee.

Once accepted for a mortgage by the NHMA, home-buyers would purchase their property with an approved lender.

To offset risks for the state, the property, while it could be old or new, must be within a price range set by the agency, thereby ruling out excessive lending that led to the property bubble burst.

Crucially, under the scheme, if borrowers default on repayments, the planned agency would continue to meet the payments while an assessment is carried out on rearranging the loan.

As part of the proposed Labour policy, pools of mortgages would be sold as bonds on the international markets thus promoting international investment in Ireland.

A small percentage of the profit from these would also be returned to the new mortgage agency.

Mr Lynch said he had looked at a housing model in Canada when drawing up PROP. He added: “This approach over the long-term will prove to be of benefit to the state and the home buyer as it will eliminate risk of another property bubble. This will be achieved by a more stringent assessment of applicants, more prudent lending practices by banks and by an insurance structure that protects the homeowner and the lender.”

Responding to the proposal, FLAC, the free legal advice group for citizens, said the plan could give a “degree of certainty and security” to householders. Director Noeline Blackwell said: “An agency with the interest of keeping people in their homes would help sort out the repayment plan.”

The leading housing agency Respond also welcomed the Labour proposal.