The great Irish deleveraging

This is like the Great Irish Bake-off but all about delevaging, Central Bank economists Reamonn Lydon and Tara McIndoe-Calder put together an excellent paper (05/RT/2017)on the topic, the full technical paper is here.

Our condensed and plain English version is below:

ABSTRACT The authors drew on the 2013 household Finance and Consumption Survey (HFCS) to stimulate household balance sheets form 2005 to 2014 for the purposes of investigating household leveraging and deleveraging during this period. The paper shows that deleveraging has proceeded significantly faster with older households as opposed to younger ones. With younger borrowers, tracker mortgages have eased the debt repayment burden in the presence of large income shocks. All in all, income shocks are the main factor contributing to mortgage repayment problems.

INTRODUCTION From the early 2000s through to the peak of the property boom in 2007, rapid increases in leverage ratios and repayment burdens far outstripped growth in disposable income, leaving households exceptionally vulnerable to the economic shock of 2008. One result of the crisis was the large increase in non-preforming mortgage loans. …

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Generation Rent? Try generation Broke

It bothers me when people promote long-term renting as a better choice than home ownership because it belies some basic facts.

When I was studying accounting, I was taught to be accurate. When I was learning about financial advice, I was taught to be prudent. Yet both of these concerns are often cast aside when debating the benefits of buying versus renting.

Nationally we are at an important juncture. It’s acknowledged that huge numbers of people won’t be able to afford to buy a home. If this proves to be true, many will also be locked out of one of life’s most wealth-creating activities.

The first problem is the nature of the comparison. If rent is €1,300 a month and a mortgage costs €1,500, then it’s cheaper to rent, right? Well . . . no it isn’t. The outlay is less, but the actual cost of the provision of occupancy is the rent versus the interest portion of the mortgage, not the entire payment. I will explain that point.

People often say rent is dead money. To be fair, so …

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Pre-emptive insolvency, the time is now.

A headline today caught our attention, it was about an injunction to have an insolvency solution honoured.

Personal insolvency is a legislation backed process (unlike informal debt deals) and for this reason you can’t unilaterally decide, as a creditor, to opt out of one that is already in existence.

What is interesting at this point in time is that many of the applications we track in the courts when gathering possession statistics are about applications for change of name of the plaintiff. This occurs when loan books are being sold and the proceedings are being altered to reflect the new owner.

There is considerable confusion even within the courts because of this and it may be a case that a person could use this as an opportunity to seek personal insolvency because in the midst of this there is a lower level of likelihood that loan buyers will engage in the process.

Failing to do this means they lose …

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Debt Relief Notice ceiling raised by 75% to €35,000

30 September 2015: The Insolvency Service of Ireland (ISI) has welcomed an amendment to legislation which will allow people on a lower income and with few assets to have debts of up to €35,000 completely written off.

The Debt Relief Notice, also referred to as a DRN, is one of the legally binding debt solutions provided under the Personal Insolvency Act available through the ISI. It allows for the complete write-off of debts such as personal loans, credit card loans, store card debts, credit union loans and overdrafts. An application for a Debt Relief Notice is approved by the Court and once it is granted, the person can no longer be contacted by creditors asking for those debts to be repaid.

Commenting on the legislative amendment, the Director of the ISI, Mr. Lorcan O’Connor stated:

The Debt Relief Notice is intended for people with very limited means who are in genuine financial distress and we know from the hundreds of people who have availed of this debt solution already that it is life changing. I fully expect that the increase …

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RTE Talking Money: The cost of raising kids

This week on RTE’s ‘Talking Money’ we looked at the cost of raising a child. Everybody who ever had kids knows it’s expensive, but did they realise it can cost about €105,000 per child? That’s a real eye opener and that so many parents cut back on vital financial needs like life insurance to allow for general consumption is a concern. As always, you’re bound to be entertained as Karl Deeter and Jill Kerby ‘talk money’.

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Talking Money – Switch your mortgage to save

This week on ‘Talking Money’ Karl Deeter and Jill Kerby were discussing ‘switching’ with Cormac on RTE’s Drivetime. It was coincidental that many of the points we made were reinforced by the Central Bank findings this week on mortgage switching on points such as assertive customer behaviour being important and not allowing inertia to hold people back.

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Cheapest credit card that almost anybody can qualify for

Credit cards often have an interest rate of 20% or more and the do offer some great convenience and flexibility, but for many people this credit contract can be a problem and the high interest rate doesn’t help. So is there a way to cut that interest rate in half?

The short answer is ‘yes’, within consumer credit there are different types of contract, ‘credit’ can take the form of credit cards, overdrafts or even hire purchase agreements.

So here’s what to do, most people have a debit card with a current account, what a credit card does is give you a time where you pay no interest and can spend money you may or may not have.

If you get an overdraft (say for €5,000 which is a common credit limit on a credit card) instead and just use a debit card with it then you can access that €5,000 in the same way a card might do. If you have money obviously your balance will go to zero before you hit the overdraft so if you always pay …

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RTE Drivetime: ‘Talking Money’ on mortgage rates, 20th April 2015

On talking money we looked at mortgage rates, where they are, where they are headed and what the best choice might be for people who are trying to decide what is best for their personal situation.

It’s a tricky question, rates can and do go up and down, but we believe the long term trend is for rates to go lower, in fact, that trend has already been occurring and there isn’t anything that seems in a position to stop it from happening. This is good news for borrowers (not so good for deposit savers!).

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RTE Drivetime: ‘Talking Money’ on Quantitative Easing, 30th March 2015

Quantitative Easing or ‘QE’ for short, is a process where Central Banks buy assets from commercial banks and it is known to bring down bond yields and drive up other asset values.

This has begun in Europe and on Talking Money we looked at some of the effects it may have and the issues that such a highbrow economic issue raises for regular people.

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Why not make a bank’s veto backfire on them?

There are two views that have been mentioned recently, one is that bankruptcy should have a reduced term to 1 year and the second is that banks have a veto on insolvency deals.

Perhaps the best way to resolve the issue isn’t to make bankruptcy one year for everybody, but rather to make it one year when and where a bank has rejected an insolvency solution put forward by a personal insolvency practitioner.

This would mean their decision to veto has a negative impact upon them, there are consequences to rejecting genuine offers. Obviously this would require some tweaking because individual cases and circumstances can become quite complex, but it would certainly help a creditor to sharpen their mind if they knew that a refusal could then have worse outcomes without affecting their contractual rights.

The good thing about this is that it would also channel more people into the proper route for dealing with debt (the official regulated insolvency one) and keep them out of what will probably become a scandal some day in the future (the informal channel …

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