Irish families should be shown no mercy if they can’t pay their mortgages, a top EU banking boss has claimed .
Chief of the European Central Bank, Mario Draghi, also warned that mortgage rates could rise if the Government’s plans to help distressed borrowers go through.
Under proposed legislation, courts could take into account the circumstances of those who have fallen into arrears with their mortgages.
The Land and Conveyancing Law Reform Bill was first proposed by by junior minister Kevin “Boxer” Moran, and brought to Cabinet by Minister for Justice Charlie Flanagan.
Last month, Cabinet approved the drafting of the bill, which could provide courts with the opportunity to show mercy to distressed borrowers.
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But in laying out his opinion of the bill, Mr Draghi blasted the Government’s proposals, warning that bank charges could increase if it is pushed through, according to The Sunday Business Post.
“It is important to carefully consider the impact of the draft law in order to ensure legal certainty, and to prevent moral hazard from arising in the relationship between creditor and debtor,” the ECB boss said in a letter to the Government.
The ECB blasted the bill, warning Ireland that it could have an impact of the rates that banks charge.
It said additional costs incurred by the proposed legislation could be passed on to future borrowers.
“The impact of the draft law on these factors, and in particular on the ability of the lender to enforce security and the potential corresponding increase in default rates, should also be carefully considered,” the bank said.
“This is because additional costs are likely to be passed on to future borrowers, and could result in a significant impact on mortgage pricing and availability.”
The Land and Conveyancing Law Reform Bill is the latest legislation that attempts to address issues faced by banks as they attempt to get rid of legacy debt.
As many homeowners who bought during the boom years struggle to pay their mortgages, Irish banks are coming under increasing pressure from Europe to reduce their levels of bad loans.
A number of banks are thinking of selling their loan books, according to the Sunday Business Post, although there has as yet been no marked increase in the number of repossession orders being sought.
