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Instead of the solutions currently being suggested, may I suggest that for the next five years all mortgages on principal private residences be made capital only.
This would have three main advantages:
* Reduce the minimum payment for most people to a fraction of current levels.
* Allow people to reduce the amount of negative equity currently accumulating due to increasing interest.
* Give people back cash which would then be spent in the local communities thus kick starting a recovery from the ground up. The problems of moral hazard are avoided as people would still be repaying their debts, and most importantly the banks would no longer be getting paid three times for their loans.
With the risk of losing their homes removed for a time, people would have a chance to enhance their communities and society in general and hopefully they would then feel confident to invest in their communities which would create jobs and a virtuous circle could replace the current viscous one.
The cost of this plan would be small relative to our current spending.
By transferring the loans and the Central Bank funding from the banks and securing one against the other, the gross cost of the €87bn of mortgages at 1% would be €870m pa. As most people would pay as much as they could, this amount would be reduced significantly each year.
As there would be no mortgage interest, all allowances could be abolished, saving €350m pa, plus the current cost of interest supplement to the DSP would almost cover the cost.
Personally I would use any extra payments to fund jobs growth through the enterprise boards to replace the current lack of bank funding. I know there are many flaws in this plan, but I think it would be a good start to allowing the indigenous economy to begin to recover.
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