Jill Kerby

GET YOUR HOME VALUED…BEFORE THE GOVERNMENT DOES

Every bi-monthly visit of the Troika, our EU/ECB/IMF paymasters, reminds us just how much – according to them – that we overspend, under-tax and pay ourselves.

On their most recent visit last week, they delivered the same message they have done for the past year:  we are working very hard to complete every new set of homework, are passing our test results, but could still do better.

We were congratulated this time for the fact that a decision was finally taken to introduce a market value property tax from next year. That it was not to be a site value tax instead, which most informed commentators seem to agree would be more equitable and progressive, is of no interest to the Troika. They want their money back ASAP. They want us to bring our debt to GDP deficit down from 13% to 3% in the next three years, as agreed, when they put us on their financial life support package.  The small details of how we get there is our problem.

Irish politicians being what they are, they’ve opted for the ‘simple’, quick property tax option – that is, to send inspectors around the country to value streets, neighbourhoods and hinterlands full of houses and/or check the latest sales data from the property registrar they’ve set up. Then they can tell the compliant taxpayer to slot their property into (probably) one of three or four value bands and then pay the assigned tax per band by a certain deadline. 

Anyone who has registered for the household charge or second property charge will automatically go onto the property tax list.

HOW MUCH TAX

The tax per value band will, I suspect, probably loosely work out at a percentage value of the property and that percentage will eventually rise to between 0.75% and 1% of the value, which is roughly in keeping with most Anglo/American type market value property taxes systems.

“After all, why should our lot try to invent the mousetrap all over again when the model already works in most of the US, Canada, Australia and plenty of European countries,” one mortgage broker suggested to me recently. “And of course when people start to protest, they’ll be reminded that this valuation is a lot cheaper than the council tax that applies in the UK and is paid by everyone – even people living in social housing.”

The politics of the property tax – how effectively back-benchers can influence their respective Fine Gael and Labour ministers - will also determine exactly who pays.

They will all want the unemployed, long term social welfare recipients exempted, including all pensioners earning below the tax free income limits of €18,000 for an individual and €36,000 for a couple, as well as all homeowners in arrears (over 100,000) and anyone who paid high stamp duty on houses they purchased during the property bubble years.

Since this will probably eliminate a vast number of households, it will be in your interests if you don’t fall into any of those categories, to at least make sure that your house, holiday home or buy-to-let property is as accurately valued as possible before the tax starts rolling out from next January.

COLLECTION

In many countries, the property tax is capitalised onto the mortgage loan:  if you have say the equivalent of a €1,875 tax fill on your €250,000 house (ie 0.75%) it is added to your mortgage (at €156.25 a month), is collected by the bank which then passes it onto the Revenue.  Someone who doesn’t have a mortgage gets to pay their tax by monthly direct debit. 

The government has yet to announce how the tax will be collected, but it is unlikely it will be collected along with all other self-assessment taxes at the October 31st end of year pay and file deadline.

Most estate agents are very happy to give people a free valuation of their homes (in the hope that you are selling), though the ‘free’ part might change if everyone decides they want it done for tax assessment purposes.  Book early to avoid disappointment.

Also, you might want to read up on techniques homeowners around the world use to challenge what they believe are too high valuations of their homes. I googled, “how to challenge a property tax valuation” and 365,000,000 results appeared. They all say you need some evidence and perseverence to fight ‘city hall’.

If the government opts for the self-assessment tax bands there will be widespread undervaluation.

If they slot our homes into the bands and send out their own valuations then you will need your own independent valuation to challenge theirs plus other evidence: the rental yields of nearby similar properties to your own, for example.

A tried and tested open market formula to determine a fair value of a house is to take the annual rental yield, multiplied by a factor of 12 to 14 (that is, a reasonable number of years you would expect to recover its purchase price if you rented it out – the lower the factor the higher the rent you could charge). 

A house in your neighbourhood, just like yours that commands a rent of €1,200 a month, or €14,400 a year, multiplied by say, 13 (years) is worth €187,200 to an impartial professional landlord.

Few of us are impartial judges of our own property values. We want them to be worth much more than they are. Nor is the government impartial: it wants our homes to be valued as high as possible so that they can collect as much property tax as possible.

Forewarned is forearmed. 

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ULSTER BANK COMPUTER DISASTER SUGGESTS WE ALL NEED A BACK-UP BANK ACCOUNT

“There but by the grace of God…”  is an expression that the heads of every other retail bank in these islands must have muttered at least a couple of times since June 19th, the date that a software code patch on the Royal Bank of Scotland computer system that clears 20 million odd current account bank transactions  every night, failed with disastrous consequences.

If you are one of the 600,000 Ulster Bank customers here in Ireland whose direct debits and standing orders were disrupted, you didn’t get your pay or pension delivered into your account, or were unable to transact regular business with another bank on-line, then you’ve experienced what it’s like when something we’ve all come to expect – instant access to our accounts via our computers or the ATM machine – fails to happen.

Ulster Bank’s latest customer update at time of writing this article – 1.30pm last Friday – stated that “The majority of our systems are now showing account balances as of today. However, some items, such as cheques, manual lodgments and some payments have yet to be processed and therefore will not be reflected in account balances. We expect that services should begin to return to normal from Monday 16 July.”

Ulster Bank will certainly come under fire again if the month-long backlog and disruption to accounts is not sorted out by the end of this week. But realistically no one should expect everything to be back to normal by then.

Instead, the next phase of the debacle will begin, that is, identifying any missed or late payment charges made against your account (and possibly against your credit record) by either Ulster Bank itself or other creditors and institutions that would have been paid on time if it hadn’t been for the disruption.

Every Ulster Bank customer and anyone affected by failed third party transactions via Ulster Bank should be going through their bank statements and put together a list of those that were not paid on time and then, when they do have a full and up-to-date statement, match these with any late bill notices they’ve received. You will need this information when claiming any refund for penalties, fees or charges from the bank.

(This assumes that there will be no automatic refund – my understanding is that every customer’s account that has been affected will have to be dealt with manually.)

By the end of this week, if your account is not fully operational – with every transaction being processed on-line and on-schedule – you still have time to consider opening a new account in a new bank and inform the payroll office in your work that they should pay July’s pay into this new account. You should then pay DDs and SOs manually, informing your service providers or creditors that any further backlog will be cleared by Ulster Bank.

TO SWITCH OR NOT?

This week many will be wondering if they should close their Ulster Bank account altogether and switch to a different bank.

No one knows for sure what happened at RBS, where the fault originated, but suffice it to say that every bank here uses similar programmes.

All we can hope is that Irish banks’ back-up systems – which also failed at RBS – are tested more frequently and that they maintain the right numbers of people in their IT departments, despite cutbacks.

Some commentators have suggested that UK state ownership of RBS after they had to pick up over £24bn in losses in 2009 resulted in insufficient investment in the IT system, but this has been dismissed.  Yet here, the Irish state, itself bust, is also the direct owner of AIB, EBS, PTSB and the old Anglo Irish bank. 

Meanwhile, switching an account is not as easy or seamless as the banks would suggest under the ‘Code of Conduct on Account Switching’. There is a huge amount of paperwork that has to be conducted between your old bank, your new bank and all the people and companies you pay (or are paid by) on line. The banks so most of it, but you still have a number of parties to contact yourself.

A switching date will also be agreed, and within 10 days everything should be accomplished to shift your bank activities from the old to new banks, but timing was everything. I switched banks for the first time in 30 years earlier this year and there were a few hiccups. 

Mostly you need to be patient and watchful that nothing on your account has been left out of the all important ‘Account Transfer Form’ that you will get in the switching pack issued by the new bank.

National Irish Bank, my new bank, whose parent is the Danish-owned Danske Bank, is an entirely cashless and mainly e-bank, bank. (Cheques and cash can be deposited via An Post.) I’m very conscious of how vulnerable I could be if anything went wrong to the computer system in Denmark or here, and how much trust we have to have in the people who run their IT departments.

An old fashioned deposit account in a credit union (and perhaps the post office) may be the answer, but even their deposit and withdrawal systems are reliant on computer programmes.

Banking is going entirely in one direction – towards cashless e-banking and the end of fully staffed high street branches. (AIB is shedding two dozen of its branches; NIB nearly all of them.) There’s no point in fighting it, but perhaps spreading your cash-access risk is a good idea: have a ‘back-up’ emergency account in a different bank than your regular one.

Finally, Ulster Bank boss Jim Browne promised that a compensation package for affected Ulster Bank customers would be announced by last week. At time of writing there was no news.

Perhaps this is also something that can only be determined with the final ‘butcher’s bill’ for the month-long debacle…whenever that will be.

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Money Times, July 8

There were more than a few comparisons making the social media rounds last week between the elusive Higgs-Boson particle and Ulster Bank account balances.

The most popular tweet was that the physicists searching for Higgs-Boson should have switched their attention from their Swiss mountain tunnel to Ulster Bank’s banjaxed computer system.

The jokes may have been lame, but the inconvenience being experienced by Ulster Bank customers is anything but, and is now likely to continue for another fortnight.  Some readers of this column tell me that there have been no normal transactions on their accounts since the computer fault began on June 19th.

As the backlog piles up, the penny seems to finally be dropping with people who have active current accounts that they need to start making alternative banking arrangements for their wage transfers, mortgage payments, direct debits, standing orders and credit card transactions.

This means opening a new account with a new bank or credit union, and writing to all the third parties that they will pay their bills manually once their next paycheque clears their new bank. Missed payments, they will need to explain, will be cleared once the Ulster Bank crash has been fully repaired and their Ulster Bank account – hopefully with their funds fully accounted for – is once again accessible.

If you are someone whose phone, light, heating and insurance bills haven’t been paid, as well as mortgage and credit card payments to other banks, don’t delay writing those letters.

You are going to need to keep a record of every failed transaction:  if you think this computer fiasco has gone on too long already, just wait until the post-mortem compensation claims begin. 

You might also want to reconsider your holiday plans: it could be a long summer for Ulster Bank customers and staff.

The arrival of GloHealth, the new private health insurance company should be just what the doctor ordered. 

There are only three players providing private health cover to over two million people in a market that is worth €2 billion, compared to the 14 product providers in the €1.7 billion motor, home and travel insurance market. 

The reason for this shortage of competition is because this is a mercilessly distorted market dominated by the continuing existence of the entirely state-owned, unregulated and loss-making VHI.

Approximately 400,000 VHI members have either cancelled their cover or switched to Aviva Healthcare or Laya Healthcare since this recession began, yet staff numbers and civil service pay rates have not been reduced and this loss-making company, the sole beneficiary of the €285 per adult and €95 per child member levy also maintains a hugely expensive defined benefit pension scheme.

GloHealth can only compete by targeting younger, more profitable customers who they believe also only want to pay for cover that they think is necessary.

They’re quite right to do so:  why would a healthy young man want maternity benefits?  Does a young family really need international health and travel benefits if the can’t even afford a holiday at home?

Under strict community rating rules that apply in Ireland, every plan has to be available for purchase at the same price regardless of the buyer’s age, sex or state of health, though waiting period, especially for pre-existing conditions apply. GloHealth fulfils all those requirements, even if the spirit of community rating is diluted by not making their three core policies particularly attractive for older customers – a trend that the VHI itself started when they stopped fully covering orthopaedic treatments like hip replacements in their most popular policies.

This new company isn’t going to survive in this contracting market on the switcher market alone. It’s going to have to attract new, first time members and they believe they can do it by simplifying their offer to three core plans they have named Good, Best and better rather than creating dozens of complicated ones now on offers from VHI, Aviva and Laya.

They’ve also promised that they’ll always be better value, which isn’t going to be easy if a price war breaks out, as some brokers expect.

I think consumers would be better served by everyone streamlining their product lines, and following GloHealth’s example by actually giving people the plans they want, and not just plans stuffed full of unnecessary, expensive benefits they can’t affor and may never use.

GloHealth’s arrival is very welcome, but the fact that Irish Life, which is now 100% owned by the state again, is a 49% shareholder in the new company, is not.

The government, in the guise of the Department of Health already owns the dominant health insurer and now, by default, nearly half of the newest one.

The VHI’s unfair, unregulated and protected status has always been the biggest obstacle to new entrants to this market and it should have been broken up and privatised 15 years ago when its monopoly officially ended. 

GloHealth may have first approached Irish Life for financial backing when it was still a private company, but by default GloHealth now has as its single biggest shareholder the same people (in the civil service at least) that have resisted any breakup of the VHI, which has been described to me by two previous senior health insurance bosses as “their private fiefdom”.

The two million people who are increasingly worried about the public health service with its long queues and cutbacks and so voluntarily pay for private health insurance deserve better.  

Introducing a property tax was always going to be contentious, but it comes as no surprise to hear that the Minister for the Environment’s preferred method of calculating what homeowners will pay will be based on the market value of their property.

A couple of very interesting site value reports, the best from Daft economist Ronan Lyons, showed how a land site value would be fair, sustainable and encourage the more productive use of land.  However, a market value calculation is always quicker and simpler, and is easier to justify as a ‘progressive’ tax measure that targets the allegedly wealthy owners, which is why it is so common in places where property taxes apply. 

Getting accurate values, in this defunct property market of course is going to be a nightmare. So will be the awarding of the tax exemptions after the lobbyists get their way.

Meanwhile, collecting the tax will make the debacle over the €100 household charge look positively benign. 

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