Mortgages should be reduced

Are we in for a summer of discontent? Perhaps the key to preventing this is the re-mortgaging of all household mortgages to the present value of the house.

This is the only honest solution.

The banks and the government of the time were mostly responsible for the huge rise in house prices due to irresponsible lending.

It is elementary economics that if you make a vast amount of credit available to purchase a given product, the price of that product will soar, whether it is the price of houses or cattle. It is not a question of whether the householder can pay but chooses not to; it is whether they should have to pay at all on a mortgage at more than the present value of the house.

When a mortgage was taken out, a clued-up bank official in 95% of cases, sold the mortgage to a trusting couple or individual. The mortgage would have been based on the couple’s joint income and would have allowed for a reasonable standard of living. When wages were reduced, and with the collapse of house prices to a little below their true value, those paying the mortgage were left with practically nothing to live on, and negative equity of perhaps €100,000 or so.

For this reason the present system of expecting mortgage holders to pay on the original value of the house is unsustainable. Can the banks afford this? It is likely that they can. The Irish banks have been grossly over capitalised (and in the process ruining many of their shareholders).

With a smaller, but more secure income, and with the uncertainty of the practicality of their present hard line stand removed, the market which hates uncertainties might well invest again in a meaningful way in Irish banks. Also the money freed by revaluing the mortgages would find its way and indeed help in reviving the struggling service industries.

In future the building trade should be closely monitored, and regulated. Builders should submit the cost of material and labour to a central authority and only be allowed 35% profit per house.

It should then be possible to get a realistic value for houses.

Adrian Cosby

Stradbally Hall

Co Laois