A letter to the Minister of Finance

Oct 6th, 2008 | By | Category: Ireland

Mr Brian Lenihan TD
Leinster House
Dublin 2

Dear Deputy Lenihan,

There is not the smallest hope that you would ever read this, so there is no point in printing it, or wasting a postage stamp.

Firstly, thank you for your intervention last week to guarantee Irish banks.  Had there been a collapse, it would have been the small saver who would have suffered the most, whenever things go wrong it is always the most vulnerable who are most hurt.  A friend who worked in Africa for years and who has little by way of pension relies on income from savings to get by – it would be people like that friend who would have felt the most pain.

Secondly, having committed support to the banks, might it be possible to support those to whom the banks lent money, at least some of it in a very ill-advised manner?  There are fears around that some people will lose everything, that we will be like England in the early-1990s with people just going to their bank or building society and handing in their house keys.

If members of the Government started pointing out that the housing market will find a floor and that, while people may take a hit, if they are able to sit tight, they will not lose everything, there might be more confidence in the market.  No-one knows how far the market will fall, but presumably it will level off at a point at which houses can be bought with mortgages that are based on a realistic ability to pay.

Doing sums on the back of an envelope, which can be no more wildly inaccurate than the predictions of various professional economists over the past two years, the following figures emerged.  If one assumed an average income of €36,000 p.a. (according to the CSO the average public sector earnings are €48,000 p.a) and that income was earned by both wage earners in a household, and one allowed a mortgage of 2.5 times their combined earnings, then an average mortgage should be for €180,000.  If the average mortgage was 90% of the property value, then the average house price should be €200,000, this is considerably less than the average of around €300,000 at the peak of the market, but is considerably more than nothing.  It would cost nothing to reassure people that, as long as they keep up their mortgage payments, their home remains a valuable asset.

Thirdly, having stepped in to support the banks in order to retain confidence in the system, would it be possible to provide a support package for householders who fall into trouble with mortgage payments?  Could the state not provide an agency that would act as a lender of the last resort to individuals, taking a charge over their houses and agreeing a manageable payment schedule?  Nothing will undermine confidence more than a glut of repossessed houses coming onto the market at fire sale prices.

Fianna Fail began as the part of the ordinary man, small farmers and working people, would it be too much to hope that the party might return to its roots and act now to reassure those living with a real sense of fear about the future?

Yours etc.

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  1. Excellent point Ian and I’d like to add that we think about a ‘cap’ for senior Bank employees such as board members and CEO’s who will turn a pretty penny despite the poor performance of their institutions – many earning more than the governors of our respective countries!

    One saving grace here is that the Reserve bank is expected to drop interest rates when they meet today. Little consolation for the strugglers as the Aussie banks will NOT pass this rate cut on but use it to fund their losses, hopefully that will prevent them from foreclosing on those feeling what we glibly call ‘mortgage stress’.

    Send the letter .. at very least to one of the national newspapers!

  2. Well-said! Ian

    I agree with Baino…

    I’d love to see this in the paper!

    I used to bemoan the fact that the Celtic Tiger had passed me by. Now I’m so very glad that it did!

  3. One problem is that Mortgage Brokers, and others, encouraged prospective house buyers to take up far more than they could really afford by making claims that their income was far higher than it actually was. One instance of this was that a man on an income of less than £20,000, was persuaded to claim an income of over £30,000, mow with rising interst rates he can no longer afford the repayments.

  4. Peter P has a good point – the mortgage brokers and the estate agents had a lot to do with the massive house price increases – and the general public went along with it because they thought they could make money out of property. A home is a place to live – not an income generator.

  5. Well said Ian…go on send it!! Over here major housebuilders(and I work for one of them) have a lot to answer for too with pushing house prices up, being a PLC the shareholders want more return every year.

  6. I sent an edited version to the “Irish Times” who, of course, didn’t print it.

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