Jill Kerby

IF WE LEAVE THE EURO WHAT HAPPENS TO THE MORTGAGE?

GR writes from Dublin:  In response to the letter from KP from Kildare (Sunday Times Money Supplement, 4th Dec 2010) you don't seem to have answered his last query, namely "What would happen to mortgage debt if Ireland leaves the euro?"  

If we were to be forced out of the euro, or left it voluntarily, the debt you hold in euro, like a mortgage, would, most probably, be expected to be paid back in the new, Punt Mark II equivalent. Even if a second tier eurozone was created for heavily indebted member states like ourselves, the Greeks, Portuguese and Spanish, the original euro debt would have to be repaid.  Expecting it to be repaid and actually getting the money, is not the same thing, however. If the Irish state were to default, there would probably be a certain amount of debt forgiveness, and the same would, presumably, have to apply to the vast amount of personal debt Irish people carry. New repayment rates and terms would also be worked out with creditors – who might be new owners of your bank. 

Would it be enough to avoid repossessions?  Perhaps, but no matter what level of restructuring  – and this applies even now as we labour under our new ECB/IMF overdraft facility – there is a pressing need for a formal personal insolvency process in this country.  People with massive, unsustainable debt need a chance to have the all or most of their debt to be wiped clean and a chance to discharge their bankruptcy in a short few years.

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I can't repay loan

AB writes from Co Longford:  I have a personal loan with PTSB which is distressed, I have been paying as much as I can over the past four months. I approached PTSB before it became distressed but they were not open to discussion.  The loan balance is 16,000; repayment was €420 per month, and for the past four months I have paid a total of €950 in payments (€50 per week) but they are assessing penalty interest of up to 11% per month and as a result interest has taken €700 of the €950 and the principle just never seems to reduce, is there anything I can do?

 There is still no formal arrears protocol from the Central Bank regulator for personal debt, despite one coming into force from next January for mortgage arrears to which your bank is a signatory.  What you need to do is to write a formal letter to your lender clearly setting out why you cannot meet your full loan repayments, that €50 a week is all you can afford and request a meeting to discuss a formal debt restructuring. In order to back this up, you should also arrange a visit to your local MABS (Money Advice and Budgeting Service) who can help and advise you in putting together a proper budget statement that you can then submit to the Permanent TSB loan officer.

 “The reality is that too often banks won’t accept the word of their customers when they say they can only repay part of their loans, but they will accept it if it is backed up by a MABS intervention,” says Brendan Burgess, the founder of the financial website, www.askaboutmoney.com .  “I think getting MABS to help your reader work out his outgoings and expenditure and coming up with a repayment that he can meet is a good strategy.”

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Pensions poser 

RL writes from Dublin:  I am 48 and a sole trader and have a small internet/mail order business that I started about 10 years ago from home.  I had been making small pension contributions every year until about three years ago when I turned I turned 45, and had a chance to bump them up. Last October I made a payment of €14,000, which represents about 25% of my gross earnings. However, I’ve been reading a number of reports that I may have to make another payment before the end of this month because of some backdated income rule. I can’t make head nor tail of the explanation.  Can you explain how it works and whether I will have an extra payment to make? I don’t actually have any spare money at the moment.

The Budget has indeed revised the terms under which self employed, sole traders like yourself can make annual pension contributions, but you can relax says Suzanne Fogarty, a partner at the Dublin accountancy practice, DLS Partners:  “The income restriction or backdating option does not apply to your reader as her earnings of €56,000 fall well below the new income limit - €115,000 instead of €150,000 which has applied up to now – and on which pension contribution tax relief can be claimed.”

Had your earnings been in excess of €115,000 in 2010, the backdating of the lower income limit to 2010 would have meant that you would have to bring forward your 2010 pension and tax payment to before the end of this year, rather than wait until the end of October 2011 to make those payments, or face a higher tax bill.  Unfortunately, not that many people have the money (having just paid their 2009 pension contribution and taxes this past October) or can borrow the value of their 2010 pension contribution.

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€50,000 Question

JK writes from Carlow:  I have €50,000 to invest for the next three to five years. Where in your opinion would be a secure place to invest and gain some interest at the end. I have savings bonds and savings certificates already.

Three to five years is a very short period of time to be investing, especially since so many life assurance based investment funds has upfront charges and monthly administrative and annual management fees.  I am going to assume you don’t have outstanding expensive debt to pay off, but If it is security of your capital that you want above all, then stock market based investing is not for you.  To beat deposit rates, however, you need to take some well-informed risks with your money.

Since you already have cash in Post Office fixed term accounts, you could consider putting some of your €50,000 into ‘real money’, like gold and silver as a hedge against the continuing devaluation of paper currencies and the risk of future inflation (see the Dublin bullion dealers www.goldcore.com for different ways in which to buy gold and silver.)    You could also investigate short term government or corporate bonds; contact a good financial advisor or consult a stockbroker.