The Sunday Times - Money Comment 10/05/09

Posted by Jill Kerby on May 10 2009 @ 21:50

In a week in which the doctors and nurses unions got together to warn us to expect even worse health care delivery over the next year due to budget cutbacks, it was encouraging to see that that Hibernian Aviva Health has decided to not just finally simplify and improve its product range, but to also lower its prices, however slightly. 


With this move last week, private health insurance brokers and consultants say that Hibernian has laid down the gauntlet to the state owned insurer Vhi. It’s certainly pulling out all the stops with a more transparent range of products, lower prices, and a big advertising and a cross selling campaign that harnesses its huge sales distribution channel. 


Anecdotally, brokers say they are selling more health insurance contracts these days than pensions and savings policies, even with record unemployment numbers.  It should be even easier now that Hibernian acknowledge, like their other rival, Quinn Healthcare, that what the great middle ground of consumers want is a good basic hospital plan or a good composite hospital and outpatient plan in a single wrapper with two competitive price points. (Despite the dozens of combination plans of plans available, over two thirds of the two million private health insurance members own Vhi Plan B or Plan B Options and the two Quinn Essential and Essential Plus plans.


One independent health insurance consultant claimed last week that Vhi, as the largest and most expensive provider, “is coming under so much pressure from Hibernian in particular on the vital corporate side of the market that it has been forced to adjust the cost of its corporate plans.”  Earlier this year it cut the price of child member premiums, a response to cheaper offers from its rivals. 


Nevertheless, the price differential between the Vhi, and Quinn and Hibernian, is growing so large that the Vhi is said to “hemorrhaging members” said the consultant, something that will only be confirmed when the Health Insurance Authority produces it’s next report. 


In the meantime, says fee-based health insurance broker Dermot Goode of www.healthinsurancesavings.ie, families in particular should take note of the latest cost comparisons: two adults and three children will save €455 in the space of a year by switching from Vhi’s Plan B at €2,520 to Hibernian’s new Level 2 Hospital plan at €2,065 and €186 by moving from Quinn’s €2,251 Essential Plus plan. 


It wasn’t long ago that a savings of €455 may not have been enough to shake off a member’s inertia, says Goode, but thanks to the April budget, “that’s the kind of money some families are losing every month to the new income tax and health levies.” 


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Anyone with a property down payment that’s burning a hole in their pocket should take a careful look at the latest Daft.ie National Rent Index survey.   


The 5% fall in rental yields nationally in the first three months of this year and 15.5% in the year to date isn’t just a phenomena of the rental market; it also reflects the general state of the market which in some areas is reckoned to be down 40% since it’s peak in late 2006. 


If this negative price pace continues over the next three quarters, rents, which are now averaging €840 a month, could drop by a further 20% in 2009.  With twice as many rental properties available than there were in 2008 and so many thousands of empty properties not even on the rental market, the buy to let market looks dead in the water.  Negative equity is the risk that the investor or owner-occupier takes if they try to wade in without at least a 20% deposit.


The banks – which were falling over each other to approve all those 100%, interest-only landlord loans – also share that view.  Despite the fact that rents are crashing, they have declined to pass on the substantial ECB rate cuts to buy-to-let clients with variable rate mortgages on the grounds that – wait for it - this would be irresponsible lending at a time when prices are declining. 


The only winners in this collapsed market are residential tenants of course, who, unlike their commercial equivalents are not hamstrung by long, inflexible leases and upward only rent reviews. But they still shouldn’t be tempted to jump into the market just yet.  The Daft report is one of the best indicators of the fundamental weakness of the wider property market and rising unemployment by itself will keep forcing rent and purchase prices lower.  


The time to buy – either for yourself or as an investor – will be when the historic ‘mean’ is reached again; that is, when a mortgage can be arranged that accounts for no more than three or four times the buyer’s annual salary or when the price of the investment property accounts for between 12 and 14 times the annual rental yield.  In other words when someone on €40,000 a year can buy a home for €160,000 and a property that generates the Daft average rent of €840 a month sells for between €120,960 and €141,120.


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An ATM card isn’t much use when it’s in your wallet at the bottom of the Canal du Midi in France or it’s been gobbled up by an ATM machine in Italy on the Friday evening of a bank holiday weekend.  Up to now all you could do was use your mobile phone – if you had one – to cancel the cards and ask for replacements. 

However, if you are one of the 52,000 Permanent TSB customers who loses their card every year (but not their mobile) you can now use your mobile to text yourself access to up to €100 a day of emergency cash for five days from any PTSB machine.  

And even if you lose your phone you can get someone else to text your account for you.   I expect this one will be rolled out by the other banks – and the sooner it includes international ATMs the better. 

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