The Sunday Times - Money Comment 15/11/09

Posted by Jill Kerby on November 15 2009 @ 14:03


Progressive taxation - Move to Belize

The fact that 10 lenders have now agreed to a six month moratorium on pursuing mortgage arrears through the courts will undoubtedly be welcome news for those thousands of people who are receiving threatening letters from their lenders over their inability to meet their monthly mortgage repayments. 

The new arrangement doesn’t include the sub-prime lenders who not members of the Irish Bankers Federation and who have pursued a disproportionate number of repossession orders in the courts, but I’m not sure that’s such a bad thing. 

Subprime mortgage holders who are in arrears need to face reality: a large number of these higher cost loans, taken out on overpriced properties during the property bubble, were always unlikely to be repaid if their financial circumstances deteriorated or interest rates went up. 

Losing their house or apartment could be a blessing in disguise, especially if an agreement can be reached that involves a realistic repayment of any shortfall between the outstanding capital/arrears and any sale price the lender achieves.  One such distressed owner said on radio last week “that anything would be better than what we’re going through right now”, referring to the drawn out, legal process in which he and his partner were now trapped. 

The problem is so much bigger than the few numbers actually being taken to court suggest. 

Last summer, the Daft.ie economist Ronan Lyons calculated that 720,000 of the 1.7 million properties that make up the national housing stock would not achieve their last sale price. He predicted that 340,000 homeowners, a large number of them first time buyers, would be in negative equity by next year and because of high unemployment, 60,000 would be in arrears and therefore much closer to defaulting on their loans. 

This latest IBF lifeline is not going to be enough.  It will allow a growing number of desperate mortgage holders to tread water, but what the weakest of them need, is a genuine rescue boat.  

Fine Gael’s idea of a Nama-style equity-for-debt bailout may very well end up being adopted, but it doesn’t strike me as very realistic, no matter how “fair” it sounds now that the reckless builders and bankers have been saved from bankruptcy.  

By my own reckoning, the cost of a 20% equity-for-debt swop for 100,000 first time buyers with average mortgages of €250,000, who are now in serious negative equity of 35% - the amount so many estate agents and economists agree that property has fallen by since 2007 - would be at least €5 billion, plus debt servicing and administration charges. 

And that’s just the problem of some first-time buyers. What about the existing home-owners in danger of losing their homes through unemployment who borrowed heavily against their existing homes to buy second or buy-to-let properties, to invest in their businesses or even expensive lifestyles?

Should the taxpayer pick up the cost of their bad judgment, however encouraged they were to borrow by the reckless bankers?  What would the effect of this be on mortgage holders who were paying their loans, but were disgruntled by the more favourable treatment being given to their feckless neighbours? 

The Americans have set up all sorts of mortgage assistance schemes, even though home loans there are already ‘non-recourse’, meaning that the owners can walk away from an capital shortfall if they property is sold at a loss. 

Reports suggest that they are not all working to plan: owners who were eager to keep their home at any cost, and sign up for a part rent/part capital refinance deal often regret their decision if the property price keeps falling, or they see other nicer houses are now cheaper than their own. In those circumstances, they stop making repairs or renovations and there are many cases where they still end up walking away, crystallising an even greater loss. 

Since the banks don’t have the capacity to write off the scale of our bad mortgage debts – and the state ruled out bankruptcy, the natural solution a year ago when it started down the Nama road, what can be done?

All suggestions welcome.  They’ve got to be better than what our so-called leaders and captain’s of industry have come up with so far.


Private Health Insurance - Review your Policy

Private health insurance holder would be wise to review their policies soon: on January 1st two of the three providers, the VHI and Quinn Healthcare, are expected to raise their premiums by 15%-20%. Hibernian raised their premiums by 12% last month.

Dermot Goode, a fee-based advisor who specialises in private health insurance (www.healthinsurancesavings.ie) told me last week that more and more of his clients are finding it tough to justify the high cost of their existing plans, despite their concern about not having private cover.  

“If they do switch and are VHI or Quinn Healthcare members, they should do so now and lock into current, lower premiums for the next 12 months.” 

Goode says he’s worried about how the December budget is going to treat private health insurance premiums which still carry standard rate tax relief of 20%.  If the Minister reduces or abolishes the tax relief, or increases the €160 per adult and €53 per child levy introduced a year ago, he foresees even greater numbers of cancellations – some suggest as many as €10,000 a month are dropping their membership - and a big headache for the public health service. 

1 comment(s)

  1. antony on Jul 21 2016 05:33
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