Jill Kerby

WHY BREXIT IS A REALITY CHECK FOR US ALL

The day after the Brexit vote, it spooked the markets, sent the pound tumbling and caused the UK prime minister to fall on his political sword.  At time of writing, the only certainty was the last one: David Cameron will resign in October, but the pound/euro rate has been up and down, and so have the markets. As they do, and will.

Last Friday morning the BBC was the first off the mark to try and answer that question (and you have probably seen other such articles in the ensuing days) and all of them have come to the same conclusion – nobody knows.

Over the last month this column received a number of emails and letters from readers about how a Brexit vote would impact on their UK state and personal pensions. They asked what would happen to their second homes or buy to let properties in the UK. They wanted to know what to do with their savings in UK bank accounts.

With so many close family connections between these islands, a few of you also raised the question of what to do with an Irish or UK inheritances, tax liabilities and one worried parent even queried whether they will face higher fees in September when their child returns to university in Northern Ireland.

The immediate fallout of last Friday’s vote is the sharp fall in the value of sterling. This means that the cost of goods and services here will be more expensive or British and Northern Ireland traders and visitors.

Irish people who are receiving a UK pension – and tens of thousands of people who worked in the UK and returned here in their retirement may be entirely or partly dependent on this income - might find that their next cheque or payment will buy them less if sterling is lower against the euro. It dropped by up to 10% early on the day after the vote, then it recovered…and fell again.

As you read this, sterling may or may not be up …or down against the euro, again.  The only sure thing is that pensioners may have to tighten their belts, dip into their savings or find another source of income. Or not.   

Anyone collecting rent from a UK-based property or from share dividend income or from a sterling capital gain can also experience a loss of income if the sterling exchange rate with the euro falls.  The parents who already pay fees to a UK university will pay less if sterling falls against the euro and stays there.

Shoppers and holiday makers in the UK will also pay less if the value of sterling falls and stays down.  This will boost UK business (and exporters) and its tourism industry. Can they adapt to higher import prices?  If they can’t they will lose competitiveness, and lose business.

We’ve all been here before. Currency fluctuation has been frequent and sometimes brutal since the 1970s when currencies were completely decoupled from their historic anchor, gold.  Brexit looks like being just another trigger for a  major development in this long game of currency, trade and business ups and downs.

So what should we do, as individuals, about the UK leaving the European Union?

There is absolutely no point in anyone here wringing our hands about a decision we had no part of.

But what we can do is accept the reality of Brexit. And act in our own best interests.

Review your own finances. Know exactly how much your household earns, spends, the exact tax it pays. Find out exactly how much debt you own and its service cost. How much do you save and invest? Is it enough to meet your important life goals, like home ownership, your children’s education, your retirement?

If you can’t do this review yourself, or you don’t feel confident in doing so, seek out some independent, impartial help. Discuss your financial exposure to the UK with someone who is aware of UK property, pensions and tax. Check out the website of the Society of Financial Planners of Ireland (www.sfpi.ie) or contact an independent adviser –ideally a fee-based one – who comes recommended from a person you trust.

Irish businesses face competitive challenges and so do the rest of us.  But Brexit is just one of the challenges ahead. A US recession in 2017 appears on the cards and the EU’s long, drawn out recession continues. Greece, and now Italy’s basket case economy are going nowhere.

Brexit has introduced some reality to the economic ‘la la euroland’ that has been fostered by politicians and their creatures in the Central Banks which was always going end badly.

There is now a two year window for the UK and EU to negotiate a realistic new relationship. You might want to move a little faster than that in preparing yourself and your family for whatever that outcome might be.

jill@jillkerby.ie

ELDER ABUSE COMES IN ALL SORTS OF FORMS, INCLUDING FINANCIAL

The idea of emptying granny’s savings account because she’s frail and a little forgetful or in a nursing home, or because she’s still living independently but a soft touch, is a pretty distasteful subject.

It happens a lot, according to advocacy organisations like Age Action, the HSE sponsored National Association for the Protection of Older People, and even Ulster Bank, whose survey a year ago found that up to 45% of its own staff had experience of dealing with suspected elder abuse cases. (A story this column covered at the time.)

Last week, again with the support of Ulster Bank, Age Action launched a new two minute video about elder abuse: https://youtu.be/cRA_Hsj5HVg

Twenty thousand leaflets are also going to be distributed to older people and their families all over the country about the dangers of this kind of abuse, in the hope of reducing cases.  About eight cases a day – nearly 2600 a year - are reported to the HSE, of which about 20% concern the elderly person’s finances. (Over 80% of all EA cases involve women aged 80 and over.)

The new video doesn’t beat around the bush and it claims that that the vast majority of cases involve a friend or family member, often an adult child.

The abuse is usually perpetrated in three ways claims Age Action:

-       The misuse of personal financial details without knowledge or consent;

-       Pressure to sign legal docs without access to independent advice;

-       Theft of personal property and financial assets.

The misuse of personal financial details includes the use of credit card and debit cards and PINs, forging signatures, transferring money from the older person’s bank accounts and even overt identity theft.

Not having independent legal or financial advice is common enough even among married couples when important business or financial events occur, let alone between an elderly person and a relative or friend, eager for their signature. (Wives who are ‘paper’ directors of a husband’s company often sign contracts and loan documents they’ve never read, to their eventual detriment.)

Pressuring an elderly relative to friend to co-sign or guarantee loans, to favour them in their wills, or to even turn over their homes in the form of an early inheritance can be achieved often by threatening to withdraw care. It is certainly more likely to happen if the older person doesn’t have access to a trusted legal or financial adviser (or any impartial outsider.)

Meanwhile, the theft of personal property and financial assets can and does happen with considerable ease, whether cash, jewellery and other small valuables or larger assets – art, furniture, cars, even their homes.  Even gentle bullying (“Don’t you remember you said I could have this?”) is a form of abuse, especially of a frail and perhaps forgetful person.

Banks, post offices and credit unions are becoming more aware of the signs of financial elder abuse, say the advocacy groups and, as the Ulster Bank survey showed, keen to encourage their staff to report their suspicions and then discreetly follow up these suspicious, if necessary, with the Gardai and the HSE National Safeguarding Office.

General signs that financial elder abuse may be happening, according to Age Action is that the older person (or someone else) notices that money or belongings have gone missing, that the person appears to be short of money when they shouldn’t be, or even that they appear to be reluctant to keep regular appointments with friends or family, away from their carer or closest relations.

The ideal solution to this kind of abuse, of course is to take some precautions early and to make sure you always have a trusted ally – your family solicitor, financial adviser, even your medical practitioner or priest. Don’t be afraid to contact them if you are being put under unwelcome financial pressure.

Always keep orderly financial records, including spending diaries/budget. Make sure you have a will that includes an Enduring Power of Attorney that will ensure your financial wishes are fulfilled if you are no longer mentally capable.  Valuables should be itemised for insurance purposes. 

The HSE lists a number of practical tips to help you keep control of your finances and they include

-       appointing a trusted person to collect your pension for you if you can’t do it yourself;

-       setting up direct debits and standing orders to pay your bills;

-       never revealing your PIN numbers to anyone;

-       keep a close eye on your bank statements and card transactions.

On this last point – if you do give access to your finances to someone else, list exactly the extent of that access and the limit of their authority, and share this information with your bank/post office/credit union manager and ideally your solicitor. 

If you think you might be a victim, or suspect someone is, speak out. Contact Age Action Confidential at 01 4756989.

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

NO EASY SOLUTIONS FOR ANYONE ASSET RICH, CASH POOR

Welcome as the extra €3 state pension payment has been since the October budget is the freezing of the weekly payment at c€230 a week since 2009 had taken its toll.

With half of all pensioners relying on their state pension (and whatever savings they might have), the last eight years have taken their toll.   Most would report that not only have they had to tighten their belts to pay for extra taxes, higher fuel, transport, insurance and health care costs, but in recent years they’ve had to dip into their savings to meet many of these rising costs.

The nil return (after DIRT and inflation) from deposit accounts has accelerate this capital decline and it certainly explains the sharp rise in queries, both to this column and financial advisers about equity release mortgages and home reversion schemes from older home owners who are typically asset rich but cash poor.

“I get a lot more calls like this, usually from a younger relative, a son or daughter, of an older person,” a financial broker told me last week. “They are very keen, now that property prices have been rising in Dublin, Cork and Galway and in big commuter towns, to find out if their relative could raise some cash from the equity in the property. The money isn’t just to replace windows or change the central heating, but to just help them pay bills and live better.”

 “Unfortunately, I have to tell them that the once popular equity release and home reversion options that were on the market before the crash are just not available anymore. But worse still, other solutions, like adult children borrowing against their own homes to provide some cash for their parent, are also quite difficult to arrange.”

Older people, even those still working, are finding it increasingly difficult to arrange loans of any kind, he added, especially if they are in their 60s and banks expect mortgages to be paid off by age 70.

“Despite the fact that house prices are up, and that some people have both a state and private pension, the banks are unwilling to take a chance that something might go wrong with an equity release loan,” the broker explained. “A fall in prices could happen if enough new supply does come on stream in the next few years. They are being extremely cautious in their valuations.

“The risk with equity release loans is that the interest is building all the time. The banks have told me that they aren’t so much worried about collecting their debt from the estate when the client dies, as collecting if the owner needs to go into a nursing home. To qualify for Fair Deal, the interest and capital debt would have to be repaid without the selling the property.

“If there is a dispute, the banks say they don’t have much confidence in the Courts supporting them against a charge that the original loan was not arranged properly, or the person was not entirely sure of what they were undertaking, or where a dispute arises within the family that the older person had been coerced into borrowing the money for the wrong reason.”

Disputes have arisen, he said, where the equity release or reversion (where a portion of the value of the house is sold in exchange for a discounted lump sum or annuity income) was arranged in order to provide financial assistance to an adult child or grandchild, either to help them clear their debts or to give early inheritances.

“I would never recommend that anyone borrow against their home or sell a part of its value to then give that money away, even if it is considered an early inheritance.  The risk is that you might be caught short if you ever did need to sell the property or downsize,” the broker told me.

“It’s also a good way to cause considerable dissent among the remaining siblings if the money is not divided among them all.”

With none of the banks willing to extend equity release or reversion finance anymore, the only options to raise more capital or income “is to consider joining the €12,000 a year, tax-free, Rent a Room scheme; by downsizing or by arranging an inter-family loan. This involves their own children taking out personal loans, or by convincing their mortgage lender – and it won’t be easy - to give them a second mortgage on the grounds that they will hopefully, eventually, be a beneficiaries of the parents’ estate.”

 “I tell my clients to prepare their case for an equity release loan very carefully.

“Be realistic about how much you want to borrow and the valuation of all the properties involved.  A pensioner in their late 70s or 80s with a valuable property in a good location, or their children on their behalf, who wants to borrow €30,000 is more likely to succeed than a 66 year old who only has the old age pension to live on, no matter how nice their house.”

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

OLD HOUSES ARE BECOMING DIFFICULT INSURANCE PROSPECTS

Last week I noted how difficult, well, how pretty impossible it is, for older homeowners to downsize to a small home if they don’t first sell their existing one and then close the sale with cash.

The problem is that the banks won’t lend them the bridging finance they need when a link in the property chain gets snagged or broken often due to problems with the buyer of their place securing enough finance to keep up their end of the sale.

Quite a few of you passed on your unhappy property chain experiences and one of them was particularly interesting…to anyone who has a house that happens to be over 100 years old.

“My husband and I are both originally from the South East,” Mrs G explained when I contacted her. “Our last child finally left home  (in a nice Dublin suburb) two years ago and last year we decided with house prices doubled from where they were in 2010 we would sell up and move back to Wexford.

“We found a really nice, modern house in a great location. The owner was in no huge rush, so bridging wasn’t an issue.  The prospective buyers were keen and had a pre-approved mortgage. But we lost that sale, not because of our ages or a bridging issue, but because of the age of our house.”

According to Mrs G, their house, a Victorian terrace (not unlike my own) was built in the 1890s and the black slate roof had not been replaced in last 100 years, though it had been patched, repaired and fitted with new gutters.

The age of the roof was discovered when the buyers made their final mortgage application and inquired about building and contents insurance. The lack of a “new” roof wasn’t going to prevent them from securing their mortgage, they were told, “but it certainly delayed the process and it eventually spooked them,” she explained.

“They told us price of the insurance seemed very high relative to what they were paying and they discovered that only the bank’s preferred insurer was willing to give them a quotation. No other company would insure them unless they replaced the roof.”

The Dublin house was eventually sold – to a cash buyer.  “We made it clear that there might be an insurance “issue” because of the roof, which is perfectly okay, according to our roofer, but they didn’t care.

“You may want to warn your readers that older houses are discriminated against as much as older sellers and buyers.”

According to Sean O’Connell of The Insurance Shop in Dublin, who specialises in insuring homes and business premises and is a Chubb ‘Masterpiece’ agent in Ireland, “it isn’t just the roof that is the problem for owners of older houses. It’s also the wiring and plumbing.

“The state of the insurance industry is all over the place at the moment. Too many experienced people have left as a result of the recession and junior staffdon’t have the knowledge or authority needed to deal with older properties.

“An old roof that hasn’t been replaced, or even a house, young or old, with a flat roof that is more than 20%-30% of the roof space, is going to raise red flags.  But the insurer might refuse to quote if the plumbing and wiring hasn’t also been replaced.”

Even if you can produce the RECI (electricity) or engineering certificates, there’s no guarantee you’ll get a quotation. Comparison shopping, he says is out of the question. And while existing contracts are being renewed, the ‘captured’ nature of your relationship means premiums will keep rising.

Unlike the motor sector, where third party cover is a legal requirement and someone who has been turned down can appeal to the trade body, Insurance Ireland, “there is no such appeal process for home cover since there is no equivalent legal obligation,” says O’Connell.

Yet he acknowledges that not only is much of the existing housing stock in Irish towns and cities over 100 years old, but a mortgage can’t be secured unless the building is insured.

“Once you disclose – and you must – the age of your house or that it includes a flat roof, chances are as a new customer you will have to produce compliance certificates.

“If you can’t you can seek a quote from Lloyds of London through an Irish insurance broker but expect to pay two or three times higher and it isn’t an ideal arrangement, service-wise.”  Chubb insure properties worth over €1 million regardless of their age, O’Connell explains, but even replacing the roof “is no guarantee that you will get an affordable quotation.”

Insuring older properties “is turning into a nightmare for owners and buyers.”  If the new Minister for Housing is serious about freeing up the housing supply, he might want to deal with this one before it gets any worse.

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

WHATEVER HAPPENED TO BRIDGING FINANCE?

The strict 20% downpayment criteria set by the Central Bank hasn’t just got young, first-time buyers scrambling to find sufficient cash to buy their preferred property (if it’s worth over €220,000.)

Older buyers, keen to downsize are also being caught by this requirement and the additional problem of mortgage age restrictions and the fact that bridging finance is a thing of the past.

Recently, yet another reader was in contact after her request for a bridging loan was turned down by her bank of over 25 years.

Like other readers who’ve been in touch, she has also lost out on the purchase of a smaller, less expensive home because the property ‘chain’ has broken down, mainly due to the Central Bank’s strict lending rules.

A widow, aged 70 and on modest pension income of only about €17,000 a year, her large family home in Co Kildare has been valued at between €400,000 -€440,000.  She has about €250,000 in cash. The latest house she would like to buy is on sale for c€340,000 but to secure it she wants to borrow €100,000 in the form of a bridging loan.

Interest in her home has been strong, but in at least two cases the prospective buyers took too long either in getting their down payments and/or mortgage approval in place and by then, the new smaller property she wanted, was bought by someone else with the right amount of cash.

It isn’t just older people, keen, like this reader (and a number of others who have written to me, in exactly the same situation) who are being turned down for the much needed bridging loan.

“The banks simply are not extending this finance to anyone,” says Karl Deeter of Irish Mortgage Brokers. 

Risk-taking of any kind is being discouraged by the Central Bank but the situation is further complicated for older, often retired borrowers because their incomes may be deemed too low (and fixed); they may have health problems which could impact on any insurance requirements and make any default process (should the worst happen) very problematic and expensive for the bank.

Unfortunately, says Deeter, there are no satisfactory and affordable univeral solutions.

“Older people who find themselves in this situation might have to be more patient and consider selling their house and then renting short term in order to be able to buy the right property at the right price.”

Having the full sales proceeds in their bank means they don’t then have to rely on the property chain working smoothly. Instead, they join the group of cash buyers who don’t have to worry about 20% down payments (over €60,000 in our readers’ case), bridging finance or the possible breakdown of any purchase offer of their own home.

The downside of renting, of course, is that in the major cities and surrounding commuter counties (like Kildare, Wicklow, Meath and Louth) rents are still going up, as are property prices.  This is an altogether uglier kind of property chain.

According to the latest Daft.ie survey, rents have gone up nationwide for 15 of the past 18 quarters and now average €998 per month with the average rent in Co Kildare at €994 per month, €1,029 in Wicklow, €926 in Meath and €835 in Louth.  Short-term lets can be even more difficult to secure – at that price - than longer term ones.

Since there are practically no positive returns on demand deposits, paying rent while you wait for the right house to appear just has to be written off as the best worst option if you want to avoid continually the bidding war on the perfect downsized property that you want for your retirement or advanced years.  

Reluctant renters need to focus on the positives and not on their rent money going down the proverbial drain:  A smaller, and perhaps more modern rental house or apartment will hopefully result in lower heat and electricity bills. The rental property (and their new home) might be within walking distance or on public transport routes and therefore might save on petrol and transport costs.  Unfortunately, rent relief no longer exists for any private tenents.

(Wherever you move, these are the sorts of costs you should aim to be saving; a lower value property also means lower property tax bills in the long run. Well built, newer properties should eliminate expensive maintenance costs.)

Our reader, could of course set her sights lower and buy a property with her €250,000 cash.  But the return of bridging finance – which has always been such is a useful tool in the past – would be a far better option for her and so many other older owners keen to downsize.

Unfortunately, it looks like our dysfunctional and micro-managed mortgage lending market is here to stay until the legacy mistakes of the boom years are sorted out. And that could still take some time.