Get Your Affairs in Order

The title of this blog piece has nothing to do with Tiger Woods, Wayne Rooney or any of their ilk. I came across this checklist on Chartered Accountant Tommy McGibney's excellent tax blog.

Like most good ideas, it's a simple one. While most of you have already made a Will (haven't you?), this is a simple checklist detailing where various important documents, bank accounts, life assurance policies are held and who the relevant contacts are.

I'd strongly urge everyone to take an hour or two to complete this, make a few copies and let a few trusted people know where your checklist is kept. In the event of your death, it could make matters so much easier for those you leave behind.

MBNA - the good, the bad and the...

I have an MBNA crdit card and I (nearly) always pay it off each month in full to avoid paying interest. In general I find that MBNA offer very good customer service, but woe betide anyone who falls the slightest bit behind in their repayments.

The Good. Option to manage your account entirely online eliminating paper with robust security. Option to notify MBNA when you're going abroad as they can and do contact you if an unusual transaction (e.g. one from a foreign country) appears on your statement.

The Bad. For no other reason than human error, I forgot to pay MBNA by the due date one month. This would be the first time I had been late with a payment in literally years of having the card. I received a phone call from a machine asking me to commit to a payment, which I did. The same (very irritating) machine rang me at least four subsequent times even though I had already made the payment and gone through the long process of "Press 1 for this, Press 2 for that" several times.

If you're unfortunate that you end up in arrears with an MBNA credit card, it can turn positively ugly.

Verdict? A fine service as long as you make sure to pay on time every time.

Deposit Guarantee Scheme extended

The Department of Finance has announced that the Credit Institutions (Eligible Liabilities Guarantee) Scheme (the ‘ELG Scheme’) has been extended from its original end date of 29th September 2010 to 31st December 2010.

It's important to note that there are two deposit guarantee schemes in operation - the Deposit Guarantee Scheme, which covers all deposits up to €100,000 and does not have an end date and this ELG scheme which covers deposits in excess of €100,000 and has been extended to 31/12/2010.

It's also important to make sure you know if your own bank is part of either or both schemes. Not all banks operating in Ireland are part of both schemes and some are part of neither, as they participate in their own country's deposit guarantee scheme.

See the Department's press release here.

Feel free to talk to us about your deposits and their security. We are authorised to arrange deposit accounts and have attractive rates for demand, notice and fixed rate accounts for individuals, corporate customers, charities and pension funds.

Mortgage lending in Ireland has fallen off a cliff

This is a guest post written by Simon Moynihan, Communications Director at www.bonkers.ie

"A bank is a place that will lend you money if you can prove that you don't need it."

Bob Hope could have written that line about lending in Ireland today. With high deposit rates, it’s a great time for savers, but borrowing has become more and more difficult each year since the bust. Customers have known for some time that the game has changed, but many banks still insist that they are open for business and approving large numbers of home loans every day.

A few weeks ago the Irish Banking Federation and PWC gave us numbers that tell a very different story. In their latest quarterly report on the Irish mortgage industry, they showed that mortgage lending is still very much on the slide. In the first quarter of this year, there was less money approved and funded for mortgages than at any other time since the beginning of 2005 (which is as far back as the IBF/PWC numbers go).

In fact, total residential mortgage lending in Ireland was just €1.22bln in the first quarter of this year. That’s a drop of 39% on the same quarter last year, and a drop of 85% on the first quarter of 2006. By anyone’s measure, mortgage lending has fallen off a cliff.

What’s really telling is that only 6,954 mortgages were actually funded in the first quarter of 2010; that’s just 77 per day.

Of the small number of people actually getting loans, most of them fall into Bob Hope’s category of people that don’t need the money. 61% of those who walked out of the bank with a cheque were topping-up, re-mortgaging or moving. Basically people that already had homes – and obviously enough equity to prove that they were worthy of the loans.

Although 35% of those loans were given to first time buyers, it was the lowest number of first time buyers given mortgages since the (IBF/PWC) records began, but still… good to know that there’s some hope for people trying to get their first home.

So what’s going on? Why, when there’s (supposedly) good value in the property market and the banks have been re-capitalised by the taxpayer, are we seeing the lowest number of home loans funded in over six years?

Well, the banks know that lending money for depreciating assets is bad business so they are requiring deposits of at least 8% and as much as 20% from first time buyers. Even in a collapsing property market these are very high ratios, and eliminates a heck of a lot of potential borrowers, most notably first-timers of whom just 29 a day are getting the money they need to get into their fist homes. Then there’s the new and rigorous vetting criteria that potential borrowers have to stand up to including financial inspections, job security checks, proof of savings habits, credit checks and so on.

Next, there’s the arrears issue. Thousands and thousands of Irish households are simply unable to make payments on their existing loans. The Financial Regulator announced a couple of weeks ago that more than 32,000 residential mortgage holders are over three months in arrears and of that number, 22,000 are more than six months behind. That’s a frightening figure because it accounts for more than 1 in every 25 mortgages held in Ireland. It is so much of a concern that Matthew Elderfield, the new head of the Financial Regulator reckoned that mortgage arrears may be “the biggest legacy issue” of the bust.

The arrears story got strong coverage in the press, as it should have. Then Charlie Weston of the Independent did some digging and in a captivating article published on June 2nd he pointed out that that figure for mortgages in trouble is in all likelihood much higher… here’s why:

• There’s another 15,500 householders getting mortgage support from the state.
• Thousands more have had the mortgages re-structured to interest only or the terms have been lengthened to reduce the payments.
• Householders who have lost their jobs are working through their savings to meet their payments.
• More cash-strapped householders have negotiated payments that are a fraction of their standard mortgage payments.

These loans are obviously in trouble but they are not included in the official arrears figures compiled by the Financial Regulator because they are still considered to be performing. When Charlie Weston was researching his article he spoke to Aoife Walsh, a representative of the housing charity Respond, and she reckoned that 70,000 householders could be in, or in danger of default. That’s more like 9% of all residential mortgages in the state, or 1 in every 11.

Next, there’s the government-authorized delay on legal repossessions for all lenders regulated by the Financial Regulator – better known as the Moratorium. Introduced back in 2009, a bank could not begin proceedings to repossess a home unless there was at least six months worth of arrears. This was good news for struggling homeowners of whom we now know there are many, but certainly a time-bomb waiting to go off.

Then in February 2010, Brian Lenihan announced that the Moratorium had been extended to 12 months. It looks like the potential shock of 22,000 repossessions kicking off was just too much for an ailing government to stomach. But doesn’t this reprieve have to come to an end sometime? Or, if the numbers in arrears keep escalating, should we expect to see Moratorium extended again next February?

Throwing even more fuel on the fire, the Irish Times reported that banks like Anglo Irish have begun selling off mothballed apartment schemes at knockdown prices. The first of the schemes to be sold off are in decent locations and serviced by decent amenities, so they should sell – but most likely to investors rather than the first time buyers who could really use them.

Sadly, it’s unlikely that first time buyers would get approval to buy these apartments; after all it’s the banks themselves that are now flogging them off. In addition, selling entire apartment schemes at hugely discounted prices will affect sale prices elsewhere, further depressing the market and making it harder to borrow to buy homes!

So how much have things really changed? Well, in the last quarter of 2005, just as the Irish property market began to boil, Irish banks gave out 8 times as many mortgages to 8 times as many people as they did in the first quarter of this year. Back then, 55,618 residential mortgages were funded in Ireland, which is 605 per day. Their total value was a staggering €10.34 billion. You guessed it – that’s more than 8 times as much money as Irish borrowers received in 2010.

It’s difficult to know when this will turn around, but the signs say no time soon. There’s simply too much pressure on the banks and very little incentive to for them to lend despite catchy claims and ad campaigns. Although we’ll never know the exact circumstances of the 77 people per day that are actually getting mortgages, one could make an informed guess they are seriously financially stable and as Bob Hope says, are able to prove they don’t really need the money.

Guide to Dealing with Mortgage Repayment Difficulties

The Irish Bankers' Federation have published a guide containing some basic advice on what to do and what not to do if you experience difficulty meeting your mortgage repayments.

It can be downloaded from their website here.

There may possibly be comments about the irony of the IBF publishing such a guide when it could be argued that practices of some of their members may have contributed to some people's current difficulties, but we are where we are. It's a useful guide nonetheless.

National Solidarity Bond - is it any good?

Details of the National Solidarity Bond were announced last week, the idea having first surfaced in the most recent Budget speech. The idea is that you invest an amount of money from €500 to €250,000 for a period of ten years, after which you get a State-guaranteed return of 50%, which is fixed from the outset.

In further detail, the return is 50% Gross over 10 years (AER 4.14%) consisting of 10% in 10 annual payments of 1% which are subject to DIRT at the prevailing rate (currently 25%) plus a 40% Tax free lump sum at the end of 10 years.

The net after tax return is 47.5% (AER 3.96%) assuming DIRT remains at 25%. Minimum investment is €500. Maximum individual investment is €250,000 (or €500,000 from 2 joint applicants or €750,000 from 3 joint applicants). If you do not have €500 to invest there is a facility to save through regular lodgements. You can access your money at any time by giving 7 days notice. There are no fees, charges or sales commissions.

The money will be used by the Irish Government. As the blurb says - "The Government of Ireland wants to make it easy for residents of Ireland to help to fund the Government’s capital investment programme, develop important infrastructure, stimulate economic recovery and create employment."

Looking at it purely as an investment option, I'd say it should only be considered by someone who is 100% sure they do not need access to their savings earlier than ten years as otherwise the rate of return will be just 0.75% per year after DIRT tax, which is paltry. If you are going to leave it for the 10 years, the return of 4.14% per year, before DIRT tax, isn't going to make you rich but it may be useful as a safe haven alternative to bank deposits for some long-term cash. This of course assumes you have confidence that a guarantee by the Irish State is a safe haven.

It is irritating that the 1% levy on other savings & investment products doesn't apply to this bond, which is an example of the Government using the tax laws to suit their own causes.

Further details available here.

(Note: This product is not available via brokers. The above article should be considered a personal opinion and not professional advice.)

Don't forget to tell the taxman

If you're a PAYE employee and have a private pension policy that's paid through your bank account by Direct Debit (and NOT through your salary) you presumably have applied for and received your tax relief by way of extra Tax Credits. (You have got around to applying for your tax relief, haven't you? If not, do it NOW!)

Two things to remember: -

(1) You can also apply for a refund of Employee PRSI on the contribution at the end of each tax year, provided that you've already been granted the tax relief. Use this form.

(2) If you increase, reduce or stop your contribution, don't forget to let Revenue know. Revenue usually grant extra tax credits on pension contributions on the assumption that the contribution will remain the same until further notice. So if, for example, you stop your contributions altogether, you must notify Revenue or else you'll continue to get tax relief on a contribution you're no longer making and will have to give it back eventually. On the other hand, if you increase your contributions, you won't get your extra tax relief until you let Revenue know.

This applies to PAYE employees with Personal Pensions, PRSAs or AVC PRSAs who are paying their contributions gross and NOT via a salary deduction arrangement.

AIB Bank shun switchers; even less competition

I blogged earlier in the month about the closure of Bank of Scotland & Halifax and the negative effect on choices available to Irish mortgage-hunters that this brings.

Now AIB have confirmed that they are no longer open for mortgage switching business, i.e. moving your mortgage from Lender A to Lender B because Lender B offers better rates or a better package.

While AIB's release tells us that their "primary focus for the year ahead will be to support mortgage applications from 'First Time Buyers' and 'Home Movers', I see this move as a bad thing. If other lenders follow suit, Irish mortgage customers are then left in a position where the only way they can move mortgage is to buy another house! Think about it - your lender decides to add 2 or 3% on to your interest rate to boost their own margins and you can do nothing about it because no lender will accept switchers...

Let's hope that not all lenders follow this lead. A market without competition is not a good place to be.

Bye Bye Bank of Scotland

Although banks are generally an easy target for criticism, I'm genuinely saddened to hear of the withdrawal of Bank of Scotland Ireland and Halifax from Ireland, for two primary reasons: -

(1) Bank of Scotland's entry really did shake up the Irish mortgage market. When they arrived here, they undercut Irish banks' mortgage rates across the board and forced the incumbents to compete. The Irish customer won as a result of this competition, through lower repayments.

(2) At a personal level, it's a difficult time for the 740 or so staff who are losing their jobs. This is not a good time to be looking for a new job in banking or financial services and I genuinely wish them well.

Yes, policies do pay out.

I sometimes hear criticism levelled at the insurance industry in general that insurance companies will do their level best to wriggle out of paying claims. In my experience, a reputable insurance company won't attempt to wriggle out of a genuine claim, where the client has kept fully and honestltly to their side of the contract.

So I watch the actual claims statistics published by the various insurance companies with interest - not a ghoulish interest but rather as a reminder of what insurance is really all about.

In 2009 Irish Life paid out a quarter of a billion euro in death, specified illness and income protection claims to five thousand Irish Families. That's just one company, albeit a BIG one in terms of market share. But there's nearly a hundred families a week that were undoubtedly glad that they didn't reject the idea of insurance as a waste of money.