Tuesday 23 January 2018

Belts were loosened a little but families still feeling the pinch

Charlie Weston looks back on a year when variable mortgage rates were still steep and motor insurance premiums surged, but the Budget delivered some cheer

Families gained some money in the Budget – but the picture still isn’t all that rosy
Photo: depositphotos
Families gained some money in the Budget – but the picture still isn’t all that rosy Photo: depositphotos
Charlie Weston

Charlie Weston

It was a year when some consumers finally began to feel some benefit from better economic conditions. But many are still heavily in debt, or struggling with incomes that have been heavily reduced.

Although mortgage arrears fell, there are still record numbers finding it difficult to meet repayments. Motor insurance premiums went through the roof, and variable mortgage rates continue to be over-priced.

But there was plenty of good news in other areas, with the Central Bank finally tackling the issue of people wrongfully losing their trackers, rising consumer confidence, a give-away Budget, and more people taking out health insurance policies.

Consumer confidence/Budget

The improved jobs outlook and healthier household finances saw consumer sentiment improve throughout the year.

The index that measures this - KBC Bank Ireland/ESRI consumer sentiment index - hit a 10-year high by the end of the year.

It climbed to 103.1 in November from 101.3 the previous month. The mood of consumers was helped by the Budget, which is set to put a small bit of extra money in purses and wallets. The big change was cuts to the deeply unpopular universal social charge (USC). There was also extra child benefit, and free extra pre-school places.

All this means a young family could be €2,800 better off from the USC cuts and extra child package.

A single-earner family earning €55,000 will gain €920 from the reductions in USC, and the rise in child benefit for their two children. There is also a gain of €1,500 from the free pre-school place for one child.

This family will also gain €190 a year from the increase in the home carer credit, as long as one of the parents works in the home.

A middle-income worker will be up almost €900 from the cuts to the hated USC. This is a married, single-earner couple on €55,000.

The changes to USC have boosted the couple's income by €867 a year.

Pensioners got a bit extra, although many felt they did not get enough. The Budget means a pensioner will get €156 a year more in the State pension, a Christmas bonus of €173, and a higher weekly fuel allowance.

Variable rates

This publication campaigned hard all year on the issue of rip-off variable mortgage rates. People on variable rates in this country pay an average rate of 4.08pc. This compares with an average of 2.07pc in the Eurozone. The campaign against this reached a high point during the summer when Finance Minister Michael Noonan twice dragged the main lenders into his offices to pressurise them to reduce the sky-high rates.

Brendan Burgess, of the Fair Mortgage Rates group, has argued that borrowers on variables are being "fleeced".

"Banks are charging high variable rates because they can. The reason is there is no competition and the Central Bank is doing nothing to protect consumers."

There were some reductions in variable rates after the Noonan meetings with the banks, but mostly banks lowered their fixed rates, while also offering new products that reward those who have equity in their property with better value mortgage rates.

Trackers

The scandal of banks taking good-value tracker mortgages off homeowners who should never have lost them has been rumbling on for years.

But in the summer Permanent TSB was forced to admit it has a serious problem when it comes to the unwarranted removal of trackers from customers.

The bank had to return almost 1,400 homeowners to trackers and compensate them after the Central Bank initiated enforcement action against it.

Some of the people affected had lost their homes, others ended up bankrupt.

But according to a number of financial experts, this could be only the tip of the iceberg.

Thousands more people at other banks are suspected to have lost trackers, when they fixed their mortgage rate for a while.

There is now hope for them after the Central Bank finally decided to launch an industry-wide probe into tracker removal cases.

AIB alone could have 3,000 cases where it may have to restore trackers.

In the past few years, Bank of Ireland was forced to restore around 2,000 homeowners to trackers that should never have been taken off them.

Should mortgage holders get trackers back, the issue now to be resolved is what tracker margin they pay.

Permanent TSB has enraged some of those it has given trackers back to by putting them on margins as high 3.25pc over the European Central Bank rate.

Lending cap

In February, the Central Bank brought in strict new mortgage lending limits, new rules that proved controversial.

The lending rules restrict house hunters to borrowing 3.5 times their income, and 80pc of the value of a property.

First-time buyers are faced with finding a 10pc deposit on borrowings up to €220,000, and 20pc on the balance.

Banks can issue some mortgages outside of these restrictions, under exemption rules. But these exemptions were soon eaten up as the year progressed.

Environment Minister Alan Kelly blamed the rules for the "perfect storm" that has caused the current housing crisis.

Speaking soon after Philip Lane was appointed as the new governor of the Central Bank, Mr Kelly said something must be done to address the "number one" problem in the country.

"Given the Central Bank rules, it means pressure from the top and it means that people are being squeezed out, they can't afford it. Now, that's not acceptable," he said. Finance Minister Michael Noonan had, at one stage, called for a review of rules. However, he later softened his stance on this.

Credit unions

The Government and Central Bank continued to encourage credit unions to merge.

State body the Credit Union Restructuring Board (Rebo) had its remit extended to next March in a bid to keep the merger frenzy going. More than 200 credit unions have merged or are actively engaged in a merger process, according to Rebo. This will lead to 100 fewer credit unions.

What all of this means is that, from more than 400 credit unions in the State, there are currently around 341 active credit unions left.

The rationale for the mergers is to create strong units to deal with the sector-wide problems of excess member savings, a lack of demand for loans and still-high bad debts.

However, a number of small credit unions are steadfastly refusing to engage with Rebo and want to stay independent.

Health insurance

It should have been a great year for health insurers.

New rules came in putting in place penalties for those who wait until they are over 34 to take out a health policy for the first time.

Called Lifetime Community Rating, the new rules came into effect on May 1.

And it had the effect the Department of Health and insurers wanted, by prompting 74,000 new customers to take out cover.

The hope was that this would dampen down the ongoing price-rising mania from the four insurers – VHI, Laya, Aviva and Glo.

Not a bit of it. VHI had a small rise, but there were a number of other increases announced by Laya, Aviva and Glo.

In some cases a number of small increases were announced, amounting to a big percentage rise when it comes to renewing an annual contract.

The advice from the likes of health insurance specialist Dermot Goode is not to renew on the same plan as it will invariably have gone up.

There are now 418 different health plans on the market, even though insurers are starting to withdraw some older plans.

Arrears/repossessions

THE large numbers of mortgage holders in long-term arrears continues to be a major problem. The latest figures show there were 37,269 residential mortgage holders in mortgage arrears for more than two years in the July-to-September period.

This was down slightly on the previous quarter. Two studies carried out by Central Bank economists have shown that those in long-term mortgage arrears are more likely to have lower incomes.

These people are also likely to have big mortgages relative to their earnings. Unemployment and divorce are also likely to be factors leading people to end up missing mortgage payments for more than two years.

The good news is that changes to the personal insolvency legislation have weakened the veto banks have over formal debt deals.

The new law allows debtors to review proposals that have been vetoed by banks or funds that now own mortgages.

Motor insurance

Huge rises in motor premiums throughout the year put pressure on motorists as insurers effectively sought a back-door bailout for getting involved in an unsustainable price war, and failing to put aside sufficient reserves. Motorists' premiums have shot up substantially - by 35pc since the start of the year - AA Ireland said.

This meant that a premium that cost €600 in 2013 was now €150 dearer. Central Statistics Office figures showed premiums up by 30pc at one stage.

Insurance companies have blamed large numbers of claims and cited the cost of settling compensation cases as reasons for spiralling premiums.

They also blame under-pricing of premiums in the past, under-reserving, more strict rules on the level of capital reserves needed to be kept by insurers, a fall in investment income, and fraud.

But the State body that deals with personal injuries claims has questioned the need for double-digit increases in motor insurance hitting the nation's drivers.

The Injuries Board said it has only seen a 7pc rise in the number of claims for injuries from motor accidents, and injuries in the workplace and in public places.

The modest rise in claims to come before the Injuries Board could be explained by greater economic activity and more cars on the roads.

The good news for consumers is that judges are throwing out spurious personal injuries claims and awarding costs against plaintiffs.

It seems the judiciary are keenly aware that dodgy claims are being paid for by honest drivers.

Irish Independent

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