Debt problems haven’t gone away

You can't take it away with you - so the saying goes! Personal finance columnist Jill Kerby looks at issues including rising inflation, debt problems and Irish people's average net worth when they die, compared to other EU countries...

Predictions are flying about a huge economic boom next year when vaccination rollouts are completed in developed countries, including our own. Let’s hope so, though the consequence of the high demand for goods and services could be higher prices.

All the extra money that people who kept their jobs have saved over the past 16 months – at least €20 billion worth – is certainly going to fuel the expected spending spree and economic lift-off. This despite the most recent Central Bank household surveys that also show that our appetite for debt reduction has continued; mortgage lending has taken off, but other borrowing still remains in ‘moderate’ territory.

If we learned anything from the decade-long Celtic Tiger years, it is that buying stuff we didn’t need with money we didn’t have (due to a collective loss of sanity) can turn into a lifelong millstone for some.

When lenders lose their corporate minds, over c50,000 people can still be left in mortgage arrears 15 years along and thousands of others can find themselves still in negative equity.

Despite the lower levels of spending during the pandemic and higher savings, but in light of the size of the post Celtic debt legacy, it isn’t that much of a surprise to read that the number of personal insolvency arrangements (PIAs) completed by the Insolvency Service of Ireland only fell by 3% in 2020, compared to 2019.

Just over 1,400 protective certificates were issued according to the ISI’s just published annual report, 85% of which were for PIAs, the solution that deals with mortgage debt.

Of those borrowers who availed of a PIA, 98% had terms which saw them remain in their family home, while 39% of debtors had a reduction in their mortgage debt.

Over 1,830 people were issued with an Abhaile voucher to consult with a PIP (personal insolvency practitioner). Abhaile is the State-funded mortgage arrears resolution service.

Another 1,362 debt solutions were put in place in 2020 while 130 people were declared bankrupt and another 262 others exited their bankruptcy.

The ISI director, Michael McNaughton, warned that “Prior to the Covid-19 outbreak there were many people who were struggling with unsustainable debts. The economic impact of Covid-19 may exacerbate these issues and create new debt problems for others, especially when the existing emergency financial support measures are reduced.”

He encouraged anyone with a serious debt issue “to consult a Personal Insolvency Practitioner or an Approved Intermediary, details of which are available on www.backontrack.ie or by calling 076 106 4200. People can also freetext GETHELP to 50015 for a call back from the ISI.

With some administrative delays still being experienced due to Covid-19, anyone in financial difficulty might want to contact the ISI or Abhaile sooner than later.

Meanwhile, it is a true if unfortunate fact (for some) that we can’t take our money to the grave, as a recent study of the net worth of city inhabitants around the world by a UK insurance company shows.

Using the latest UK and OECD demographic and cost-of-living surveys, the ‘Our Life Plan’ report includes Dublin as not only as one of the most expensive cities in the world to save money due to the high cost of living but also as one of the top ten cities in the world with older people with large volumes of money and wealth at the end of their lives.

According to Our Life Plan, Dubliners (per capita) have net worth of Stg£78,968 (c€100,000) when they die. High as this amount may seem it still ranks the city’s inhabitants far below older people who live in Bern, Switzerland (£306,781), in Luxembourg (£298.856) or Canberra, Australia (£283,110) a capital, like Dublin that has some of the highest salaries and property prices in Australia.

The findings of this report (see https://ourlifeplan.co.uk/how-much-money-will-you-die-with/ ) won’t come as any surprise to anyone who knows that property still constitutes the single largest source of wealth in Ireland and how the extreme supply shortage for the past decade means that even highly paid younger Irish workers are now priced out of the capital’s market.

With the average life expectancy here now 82, it could be some time before they will be even able to count on an inheritance to help buy their own home.