Jill Kerby

MOTOR PREMIUMS TO RISE FOR YOUNG WOMEN DRIVERS

There are always ways to reduce your motoring costs. For example, low carbon vehicles attract much lower vehicle registration tax and annual vehicle taxes – for now:  it has been suggested that these taxes could be increased in the budget.

The fuel costs of an electric car will certainly bring down your annual motoring bill, but the initial cost of electric vehicles is huge and hook-up locations are still few and far between for anyone who lives outside Dublin.

Shopping around for cheaper petrol stations and driving less are obvious ways to cut costs but as for insurance, smaller, older cars are certainly cheaper to insure than newer, larger, more valuable ones. Many people are doing that switch.

Third party, fire and theft insurance, meanwhile, is slightly cheaper than comprehensive cover and there is a big difference in premiums between insurers if you agree to pay a higher ‘excess’ per claim. Up to now, women drivers have automatically been charged less for insurance than their male counterparts.

However, this all changes on December 21 when an EU Directive on the outlawing of gender discrimination for insurance products comes into effect and the cost of motor insurance for male drivers, but especially for young male drivers, is expected to fall and prices for female drivers to rise.

No one knows for sure by how much prices will drop or rise but it is expected to be anywhere from between 10% and 35% by some estimates, with similar increase in premiums for some women like first time young female drivers.

Up to now actuarial risk tables have shown, claim the industry, that more male drivers have more accidents than females. As a result, says the National Consumer Agency (NCA) male drivers typically pay 34% more for the same insurance than females and young males, 77% more. 

The gender factor will no longer be able to be considered after December 21, so if two 20 year olds, a young man and woman, with the same driving experience (say, with a full license and this is their first vehicle) present the same car for the same insurance contract, they will have to be offered the same insurance premium.

(Older, experienced drivers, male or female are unlikely to see much, if any change in their premiums as gender is less of a risk feature the older you get.)

In its latest motor insurance survey the NCA (see www.nca.ie for eight sample drivers in all categories and eight insurers) gives the example of a 20 year old male, provisional and fully-licensed student who drives a 2004 Seat Ibiza five door hatchback. There is only between €100 and €200 difference in the quotes for his provisional or fully-licensed status, but the differential in the range of premiums quoted by the insurers is huge – as much as €2,876 where the fully-licensed student wants third part, fire and theft cover.  These quotes range from €1,315 from FBD to €4,016 a year from Allianz. 

A 20 year old female driver with a full license seeking the same cover for the same car is offered quotes ranging from €660 from FBD to €1,832 from Aviva but  even when they both secure the cheapest quote, her cover costs 50% less.

The message to young drivers seeking insurance is to do so on the right side of the December 21 deadline:  young women should try and secure next year’s cover before that date when premiums for women are lower; young men should wait until after December 21.

If either sex tries to break an existing contract to avail of better rates they should check to see if there are any penalties first.

The anti-discrimination Directive applies to all insurance products, including life insurance, income protection, serious illness, pension annuities, etc.  Since women live longer than men – a gender issue – they tend to pay more for a pension annuity, for example, but less for life insurance. 

If you are wondering if there is any advantage in adjusting your protection insurance premiums in your favour, in accordance with the new Directive then speak to a good advisor. Just be careful of the ‘churning’ potential of such a review if you use a commission-paid broker who might see a big sales commission advantage to him to move you into a policy that seems cheaper, but may not include the same benefits or beneficial terms.

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Today is another significant deadline: the pay and file deadline for anyone with non-PAYE income to declare.  If you can’t get your completed tax return and payment into the Revenue today, you will have another two weeks to comply if you register and pay on ROS, the Revenue’s on-line service.

The self-employed are ROS’s biggest customers, then come anyone with rental income or self-employed income outside their PAYE job. You must also file and pay if you’ve made capital gains by selling shares or a property, for example.

If you’ve left your tax return this late, you should probably try to find a tax advisor or accountant to help you file your return so that you don’t incur penalties for lateness or an incomplete return. 

This could also be the last year that you might avail of top rate (41%) tax relief on pension contributions as there is plenty of speculation that the Minister for Finance may give in to the Troika’s suggestion that the relief fall (eventually) to the standard rate of 20%.  (Relief on PRSI payments of 4%, and the old health levy of 3% no longer apply.)

NO MORE EXCUSES FOR INVESTMENT FAILURE

Why have so many Irish people lost so much money from their investments?

The most common reason that I’ve heard over the years is:  “I didn’t understand what I was buying” and it applied not just to retirement investment funds or funds for school and college fees for the children, but to the poor value endowment mortgages and whole-of-life insurance cover that is still sold today.  Despite the national myth that we understand and appreciate bricks and mortar, the ignorance plea is also widely used to explain the nearly the entire nation was taken hostage by the cult of property investing and amateur landlordism.

Our general understanding about how money works was never particularly strong – even before the Celtic Tiger cheap credit years, with the average man in the street unable to explain how compound interest worked to rapidly balloon his credit card balance, let alone having an ability to explain the basic workings of the stock markets.

Even today, how many owners of the 880,000 private pensions in the state – and this includes the additional voluntary contributions that public service workers own – really understand the nature and rules of their own pension scheme? And can anyone explain exactly how initial and trail commission will impact on the final value of their retirement income?

In his new book, 3 Steps to Investment Success – the former stockbroker (he was a founding partner in Merrion Capital) Rory Gillen who now runs a successful investment training and advisory service, Gillen Markets - sets out to identify the common pitfalls of investing, but also to provide the ordinary investor with a roadmap to follow to not just make money from the markets, but more importantly, how not to lose their money.

We’ve all met, at some stage, people who have made piles of money buying certain shares or property.  They often describe themselves as lucky and more often they have been: they were lucky enough to buy a share early in its ‘parabolic’ phase or bought and flipped the investment property when that particular bubble was inflating.

The real sign of a successful investor – and not just a lucky speculator – is when your shares and funds or assets make steady but slow profits consistently through the combination of prudent selection of genuine value assets and have the wisdom to let the magic effect of time compound the annual share dividends or the annual yield from the property.

From the start of this excellent book, Gillen insists that “Saving or investing in  the stock markets is for everyone – from parents with the children’s allowance, to someone who has a lump sum to invest, to the person who has just started working but can save even €100 a month, to someone who is free to manage their own pension.”

Gillen is a firm advocate not just of regular investing in bargain priced ‘value’ stocks, but in diversifying your purchases.  You should never only buy just one sort of shares, say, financial or banking stocks (sound familiar?) or even shares from a single part of the world, like the UK or the US and especially not just from Ireland where our market represents such a tiny part of the global marketplace.

This is also a feature of the herd instinct that he warns against – and some of the biggest beasts in that herd are too often the highly paid professional fund managers to whom we give our money to invest.

Gillen makes you start with the basics – getting your personal finances in order first, then, learning about how compounding works; the difference between investing and speculating; about volatility and how different it is from risk; the difficulty in picking individual stocks (the average investor should favour ETFs – low cost exchange traded funds).

As the chapters progress, they become more technical and he goes into considerable detail – still in very understandable language - into the different kinds of investment classes and assets there are and then suggests specific strategies that you can follow.

There is a particularly interesting chapter on direct stock market investing and property investing that would have saved hundreds of thousands of people tens of billions of euro and the country its financial sovereignty – if he’d written this book a decade earlier.

With the catastrophic collapse of the nation’s wealth still in mind this very solid but conventional enough investment book takes a very different direction with the last chapter with a short story, titled ‘A Villa in the Sun’ that Rory Gillen commissioned by the UK award winning writer and film maker Virginia Gilbert.

It tells the story of two middle-aged brothers and their wives who have taken very different routes to make their respective fortunes.

The younger one, the “earnest, diligent” Frank, a librarian who arrives with his teacher wife Moira at the older brother David’s beautiful Spanish villa for a rare holiday. David has already made a fortune as an entrepreneur and having sold his business is now retired, but has become a trader and speculator with the proceeds of the sale of his business.  His broker has just persuaded David to to use highly leveraged CFDs or contracts for difference, to invest in a ‘sure thing’ stock that his firm is convinced is on the verge of a major price breakout.

A Celtic Tiger reworking of the Aesop’s Fable of the tortoise and the hare, A Villa in the Sun reminds Gillen’s readers why taking the slower, steadier route to investment gains – as Frank and his wife Moira have done all their lives by regularly saving and investing their surplus funds – will always pay off over the longer term. 

But it does require a level of practical realism, and mostly, patience, a virtue that too many of us lack, especially in the face of any kind of market volatility, something, says Gillen, that is always part of the investment process.

3 Steps to Investment Success – How to obtain the returns while controlling risk – is published by OakTree Press and is available at all good bookshops. 

NEW MORTGAGE HOLDERS ORGANISATION AIMS FOR GENUINE DEBT RESOLUTION

“Christmas is coming and Santy is coming too… no one stops Santy,” says David Hall, the head of the new mortgage debt resolution group, the Irish Mortgage Holders Organisation (see www.mortgageholders.ie )

A thorn in the side of the banks and government for the last couple of years over their inadequate and piecemeal responses to the huge mortgage debt crisis, David Hall has thrown down a Santa-sized gauntlet at the nation’s creditors to engage properly with their distressed mortgage customers.

He’s also sending a message of hope to anyone who is in the unbearable position of worrying about whether they will have a home in which to even set up a Christmas tree this year. Yes you will, but only, says Hall, “if you keep your head and engage with the banks, but only at the minimum required level.”

Hall, the owner of a private ambulance service, Lifeline, and a long established charitable organiser (he set up the Irish version of the ‘Make a Wish’ charity and chaired the Marie Keating Foundation) has moved on from his original debt charity work with New Beginning, a group of lawyers and accountants that took on cases of desperate home owners who were about to lose their homes in the courts.

Their actions successfully stymied most bank foreclosures except for those in which owners voluntarily agreed (often without proper information) to hand back the keys, but to remain liable for any mortgage shortfall.  They also achieved a small number of debt write-offs from the banks.

He now fronts this new, not-for-profit mortgage holders organization which this time is not just welcoming distressed mortgage holders and helping them in their impending court dealings with the banks, but is aiming to get a proper system of independent mortgage debt resolution in place. It will prepare debtors for the next step that they may have to face – one of the three personal insolvency or bankruptcy options when the new Insolvency Bill is enacted and the state’s debt resolution process is up and running. (This isn’t expected before next Spring.)

His agenda is deeper than that: the Bill itself needs amending, says Hall if the great Irish debt crisis is to result in fair and sustainable outcomes for the real people and families that are affected.

“The legislation as it stands provides no protection to the debtors – the creditors still have a veto.” The better off ones - owners of multiple properties are getting the best deals from the banks, he says, while the ordinary home owner or person with a single buy- to-let, “are getting hammered.”

He (and other lobby groups like FLAC) also want an independent appeals mechanism included in the Bill and an assurance that the three year bankruptcy period will genuinely last just three years.  At the moment it may take a year to even get a bankruptcy hearing and there are too many conditions required to qualify for the personal insolvency process that aims to keep as many people in their homes as possible.

Perhaps the most radical step towards a final and just debt resolution process he says, will be the adoption of an Irish version of the successful, state supported on-line credit counseling services that exist in the UK and US and a more realistic attitude by the banks to what debtors will need to live on during their insolvency.

The independent, impartial advice provided by the new credit service is paid by the lenders, says Hall and negotiations are underway with the Irish banks to convince them to go this route rather than the piecemeal, disjointed and “totally inadequate debt process that we have now.” 

Until the Insolvency Bill is enacted and a proper debt counseling service is in place, Hall recommends that people in mortgage distress only engage with the banks “within the MARP process, and no further.”  (The Mortgage Arrears Resolution Process involves putting a financial statement in place, securing some form of payment restructuring with the bank unable to take any legal action against the homeowner for at least one year.)

If the distressed homeowner engages any further – “even in taking up this offer to €250 meeting with an accountant to discuss a forbearance offer, then they’ve got you,” he says.

Once you are in MARP, Hall advises against any further engagement unless you have secured impartial, professional, independent advice, paid for by the bank, in whose interest it is that your debt problems is sorted out properly, he says.  Other, unsecured creditors should also be told that your debts to them will only be dealt with as part of a larger resolution of the mortgage problem. (The worse they can do is try and get a Court judgement against your house, he says.)

The Courts have been sympathetic to indebted homeowners who are trying to find a solution, says Hall.  It is now for the government and the banks “to realistically engage with homeowners” he says, and to clear the huge backlog of serious arrears cases, even if that does mean debt write-offs.

Hall and the legal and accounting volunteers behind the Irish Mortgage Holders Organisation are determined that the criteria by which the banks decide who gets a forbearance or any kind of debt settlement deal (especially in the new insolvency legislation) become utterly transparent and fair.

Without this, there will be no end to the purgatory of debt and uncertainty that tens of thousands find themselves.

If you are having difficulty dealing with your mortgage lender and believe you may be in danger of losing your home, David Hall wants to hear from you in the hope that they can either help you negotiate on a stronger footing yourself with your bank creditor or with some help from the mortgage holders organization.

Just fill out the contact invitation on the IMHO website. You never know, Christmas might even arrive a little earlier this year. 

MORTGAGE RATES ON THE RISE AS MONEY PRESSURES INTENSIFY

We certainly live in an increasingly ‘two-tier’ society:  two tier health care, two tier public sector pay and conditions and unfortunately for AIB (and some other bank customers) a two and even three tier mortgage market.

From next month, 70,000 AIB standard variable rate mortgage customers  - the kind whose interest payments float up or down over the course of their loan – will pay another 0.5% interest with the rate then pegged at 4%.

This is the second 0.5% rise in under three months, though AIB has pointed out that its SVR, at 4%, is still lower than its competitors:  at PTSB, the most expensive lender, the rate is 4.67%; at Ulster Bank, 4.5% and 4.49% at Bank of Ireland.

Mortgage borrowers are certainly not equal, not even within the same bank. At the top are the tracker rate payers, then fixed rate ones and at the bottom, the variable rate payers at the bottom. Some of them are even luckier than others.

For example, if you bought your house during the late 1980’s, the ‘90s or early 2000’s and always remained on a variable rate, chances are you’ve seen some pretty high rate peaks and some very low dips, but the size of your loan was probably small enough relative to your earnings to allow you to cope with the swings and roundabouts.

If you bought your house or apartment (or even a second property) during the bubble years, and for some inexplicable reason you didn’t get a cheap tracker mortgage, then any upward change in the SVR is a serious blow. 

Typical size mortgages by 2007 were about €250,000 but too many buyers not only had even higher home loans, they also took on unsecured personal loans and maxed out their credit cards. Meanwhile their properties have halved in value and their incomes have plummeted.

Every extra 0.5% hike in a typical variable rate mortgage will cost its owner another €30 for every €100,000 borrowed. The €250,000 mortgage-holder will have to find another €75 from next month if they bank with AIB.  This is on top of the extra €75 they had to find when the rate rose by 0.5% in August.

I don’t know any homeowner who would find it easy to hand over another €1,800 a year to a creditor, but such is the nature of the contract they signed – rates can go up at the discretion of the lender (even one that you were forced to bail out and own.)

We need a just, credible and comprehensive solution to the huge arrears and negative equity problem we already have in this country.

It would be very helpful if the Central Bankers, Banking Federation, the politicians and consumer advocate groups (like MABS, FLAC, New Beginning and Lifeline) would add another subject to their huge agenda: the introduction of full-term fixed rate loans like the kind that are available in most other European countries, the US and Canada.

Variable rates have been the loan type of choice (before the brief appearance of trackers) for too many years in Ireland with appalling consequences on more than one occasion: anyone with a mortgage in the early 90s during another financial crisis will remember how SVRs briefly spiked at over 15%-16%.

Until long term fixed rates are introduced (without punitive early redemption penalties) the regretful Celtic Tiger variable rate mortgage holder is going to have to dig a lot deeper in the future to meet their monthly payments.

Those who are already on the brink of arrears shouldn’t wait until that happens:  you need to take appropriate action if you are not to fall into a serious debt trap that will not just put your home at risk, but could cause all sorts of other marital, family and work difficulties.

First – and this assumes you haven’t already undertaken a root and branch review of your finances – sort out exactly how much money is coming in and going out.  Lay out all your income and expenditure in a ledger or an on-line budget sheet.

If paying the extra €150 a month is simply a matter or cutting back on booze, fags and gym memberships you never use, so be it. But chances are that such obvious discretionary spending is already long gone and you may have to make more fundamental, big ticket changes (as opposed to dropping them altogether, which is not recommended) to insurance and utility contracts and pension funding. You may have to make some tough decisions about car ownership, having a family holiday, or how and where the children are educated.

If, however, none of these budget cuts are possible, or enough, then you need to contact your lender and tell them (don’t ask – that doesn’t work) that you are either going to need a lower, sustainable repayment schedule or you are probably going to join the 100,000 plus homeowners who are already in arrears and a very expensive (to them, as well as you) default process.

From the moment you contact the lender, you must log every call, email, and  letter and you need to record every meeting – bring a tape recorder/mobile phone with you and suggest the bank does the same.

That’s the easy part.

Next week:  Consumer advocate David Hall’s has a plan to restore some sanity to the current mortgage debt fiasco - and to bring some hope to thousands of desperate homeowners.

PS – I’ll be giving personal finance seminars at the Over50s Show at the RDS in Dublin this weekend. Eddie Hobbs will be joining me at the Saturday session, which starts at 1.45pm.

FREE-BANKING ON ITS WAY OUT BUT THERE ARE WAYS TO CUT YOUR TRANSACTION COSTS

Leaving a large(ish)  sum in a current account –more than you need to meet your day to day bank transactions - is not a good idea. First, you don’t earn any interest.

Second, it isn’t a very secure thing to do, especially if you use an ATM card on the account or a combined debit/credit card:  if you lose your card to professional hackers they may be able to access the money sitting the account, even without you PIN number.

Despite both these very good reasons, Bank of Ireland is that latest bank to require that you do exactly this – leave at least €3,000 permanently in your current account – if you still want to avail of free banking with them.

The B of I is just the latest bank to tighten up the free-banking conditions; their intention is clearly to discourage the very idea of free banking. Very few ordinary working people have the €3,000 to spare and anyway, nearly everyone knows (or should know) that there are better accounts even in B of I where a spare €3,000 should be lodged so that it will attract some interest.

There’s only one bank that offers any semblance of free banking for customers any more and that is Ulster Bank, but even they will be bringing in similar charges to the other main banks from next summer (2013).  They’d intended to do so this summer, but their computer melt-down intervened and as part of the compensation package they put off the new account charges for a year.

In fairness, the banks have a point when they say that free-banking is no longer affordable: despite the tens of billions in bail out funds and 100% state guarantee of their deposits – all picked up by the taxpayer – the banks remain at risk of further losses as assets that backed loans keep devaluing and lending risks remain high.  The Irish banks simply cannot afford not to charge for services like ATM transactions, direct debits and standing orders, etc.

No one wants to pay the banks a penny in light of the horrific bail-out and their irresponsible lending practices of the last decade, but in even in the ‘good’ years, the average, relatively busy personal account user was unlikely to incur a fee and charges bill of much more than €100 - €120 a year. Doing your banking on-line cut that cost considerably, and still does.

The idea that the banks are a public service is simply wrong – they may be an important public resource, but their primary function as private companies (until recently) was to deliver profits to their shareholder…and for AIB, ESB, PTSB and IBRC, the creature that evolved from Anglo Irish Bank and Irish Nationwide, the shareholder is now a busted state.

If you want to reduce your banking costs to the bare minimum you can check with your bank to see exactly how cheap the cheapest on-line bank account will cost (my son’s basic NIB one costs him just €20, while mine, the Prestige account that includes a generous overdraft limit, travel insurance, access to airport lounges and even a reduced borrowing rate only costs me €125 a year, including all banking transactions.)

Not everyone is prepared to do their banking on-line, especially older people. New technology has revolutionised the way we pay our bills, and there is no going back to the era of multiple banks on our town and city high streets, but adjusting to these changes can be very daunting. If you do want to learn how to use a computer and e-bank, check your local library and community centres for basic computer and internet courses for older people. Your bank might even schedule a few classes.

If you are unable or unwilling to go the e-banking route but still object to paying higher charges for a paper-based bank account, you can always try and reduce your costs by opening an entirely charge-free post office or credit union account. You won’t have access to a credit or debit card or a chequebook (which are disappearing of their own accord anyway) but you will be able to have your pension or salary paid directly into it and can set up direct debit and standing order payments and enjoy other bill-pay services.

Finally, a very good way indeed to pay all your bills – and have access to cash – is to use your credit card in the most cost effective and strategic way. 

By paying everything with your credit card – mortgage or rent, utilities and insurance, food, petrol, bus tickets, school books, clothes and entertainment, travel – even your income taxes if you have to file and pay them once a year on October 31, and then clearing the huge bill by your required payment date, not only will you enjoy rolling 56 days free credit, but you will not incur any interest charges at all.  

(Cash withdrawals are the only transaction that attract instant daily interest, but you can even time them close to your payment date to pay as little as possible.)

Few people here ever bother to utilise this amazingly good value banking ‘service’, perhaps because few Irish cards carry ‘bonus’ or cash points,  and it does require the necessary income to be in the credit card account every month or significant interest penalties and surcharges will arise, but it might just be the most convenient and least expensive way of all to run your personal finances.

The National Consumer Agency (www.nca.ie) lists the best and worst priced current accounts on its website.