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.

Public Servants should consider retiring now

I recently looked at a pension projection for a 61 year old hospital consultant, working for a HSE hospital. The projection gave him details of his pension and lump sum from the superannuation scheme should he retire now, as well as the projected figures if he stays to age 65.

The twist, however, is the fact that the projections take no account of the 15% salary reduction to which he will be subjected, as a result of Budget 2010. Because public service pensions are based on a percantage of final salary, if your salary is reduced by 15%, your pension will be also.

But in the Budget, a window of opportunity was provided. "To ensure that any increase in the number of retirements can be managed, the legislation on pay reductions in the public service will provide that any retirements in 2010 would be on existing, pre-cut pay terms." So any Public Servant retiring in 2010 will have their pension based on 2009 salary level.

Given that Public Service pensions accrue at a rate of 1/80 or 1.25% of final salary for each year of service, a higher earner facing a pay cut of 15% would take 12 years to build up the lost pension entitlement, unless pay increases come back into fashion during that period. Someone facing a pay cut of 8% would take over 6 years to build up the lost pension entitlement.

So if you're a Public Servant and within sight of pension age, you might do well to consider retiring now. Which is presumably a deliberate move by the Minister.