We didn't think we'd be back here again so soon. Ten years on from the last financial crisis, recession looms once more. But there's a difference this time round: we've navigated these waters before. Our muscle memory is strong, and there are things you can do right now to ease your finances and your mind.
Mortgage
Keeping a roof over your head will be your biggest priority. With estimates that up to 350,000 people, or one in six of the working population, will lose their jobs as result of the Covid-19 pandemic, banks should be as worried about mortgage default as you are.
They've offered a three-month mortgage payment holiday to those whose ability to pay is hit. Some 28,000 such breaks have already been granted, says the Banking and Payment Federation.
A holiday from paying the mortgage – who wouldn’t want that? If you need it, take it, but assess your options first.
"This isn't free money. This will have to be paid back," says Michelle O'Hara of the Money Advice and Budgeting Service (Mabs) . "If your mortgage is €1,000 a month and you don't pay anything for three months, by month four you will be €3,000 in arrears. The bank might suggest charging you an extra €100 a month for 30 months on top of your usual €1,000 payment."
For those with tight cash flow, that extra €100 will be significant, with the burden running for 2½ years.
Borrowers who avail of the break will also pay more interest in the long term, says Joey Sheahan of mymortgages.ie. Just because you've been given a holiday from payments it doesn't mean that interest on the outstanding loan will be frozen during that time.
Take a borrower with €350,000 outstanding on their mortgage on a 3.15 per cent variable rate with 32 years remaining. Their repayments are €1,447.83 monthly. If they take a three-month payment holiday they will pay an extra €2,651 in interest on the three months of deferred payments of €4,546 over the remaining 31 years 9 months.
"Those who have an ability to pay should pay. We'd encourage those who find themselves in a reduced income scenario to contact Mabs before they ring the bank," says O'Hara.
The free, confidential money advice service can help you to tack the best course.
“It may not be necessary to apply for a full payment break, maybe you can pay a portion, or maybe it is necessary to take a break. We’ll help you make an informed decision.”
If your renewal is due and you usually pay by lump sum, you could consider switching to a monthly payment to spread the load
If you do need a payment break, applying is relatively straightforward. With Bank of Ireland, for example, a customer can call or complete an online form stating the date from which the payment break should begin. No other documentation is required. If there is a processing delay where a mortgage payment is taken after the application is submitted, the bank will backdate it, refunding the payment to your account.
If you have moved and have a new mortgage but rent out your previous home you are also eligible to apply for a payment break on that rental property, Bank of Ireland says, even if you don’t have a buy-to-let mortgage,
As to the impact of a payment break on your credit record, O’Hara says the message from the Central Bank is that it won’t adversely affect it.
Rent
While tenants are expected to pay rent during the Covid-19 pandemic, income supports and rent supplement are available to those struggling to pay. Rent supplement is means tested, but the Department of Employment Affairs and Social Protection has indicated maximum flexibility.
There is further support for tenants in the form of a pause on both rent increases and termination notices for the duration of the Covid-19 crisis.
Any rent arrears built up will be payable, but landlords have been asked to show understanding and reach local arrangements in these circumstances.
Stay switched on
Although spring is springing, there may be one or two more big gas or electricity bills before the summer. If you think you may struggle with a forthcoming bill, call your provider immediately, says the Commission for the Regulation of Utilities .
Energy companies have staff in place to deal with your case sympathetically.
“Suppliers must arrange practical payment plans to assist domestic customers who have built up arrears. Any repayment arrangements must take into account the customer’s circumstances and must be reasonable and affordable,” the regulator says.
One thing is for sure, the lights won’t go out and your gas will still flow, with a moratorium on all disconnections until April 19th at least.
Emergency credit for those with Pay As You Go gas meters has been increased from €10 to €100 during this period. Pay as you go electricity customers are being offered €10 emergency credit. Sums will have to be paid back, but Mabs and the Department of Social Protection can assist.
Health insurance
For many of us our health insurance is one of our biggest annual expenses. It was one of the first things to go in the last recession. By 2010, 15 per cent of those who had previously had health insurance had cancelled it, most doing so because they couldn't afford it.
If your renewal is due and you usually pay by lump sum, you could consider switching to a monthly payment to spread the load.
The Health Insurance Authority is currently meeting the Department of Health and insurers to thrash out how to help policyholders who can't pay. Industry insiders say answers in the coming days may include payment breaks, deferred payment or the option to downgrade your cover with waiting periods waived should you upgrade in future. In the meantime you can check out the Health Insurance Authority's online comparison tool [at hia.ie] to compare cheaper alternatives.
Those paying for private health insurance at a time when – very necessarily – private hospitals and private beds are temporarily gone will also wonder how their premiums might be amended. Insurers say they are working out what the move will mean for premiums and news is also expected shortly.
The one upside of lockdown is that it's hard to spend money. We've all gone cold turkey on things we may have thought were 'essentials'
If you anticipate difficulty with an imminent payment, call us, says a spokesperson from Irish Life. "To anybody who is concerned about making a payment, we would say, just get in touch and have a conversation with us about how we can help."
Keep motoring
Consumers in financial difficulty who have a car financed through a personal contract plan (PCP) should dig out their loan agreement. PCPs generally involve an up-front deposit of between 10 and 30 per cent; low monthly repayments spread over 36 months and a balloon payment at the end. The vehicle can be taken if payments are missed.
If you anticipate problems with your next payment, contact the provider either yourself or through a Mabs adviser immediately. “We can talk to the PCP supplier for you and tell them what you have the capacity to repay,” says O’Hara. They may offer a reduced payment. Taking out a loan to pay the instalments will only increase your overall cost of credit.
Make a budget
When it comes to belt-tightening, many Irish citizens have recent form, and many have unhappy memories too.
“There is a lot of emotion out there, and there is a lot of anxiety,” says O’Hara. “Everything has happened so quickly. There has been zero lead-in time. Telling those who were unemployed in last recession that they need to apply for social welfare payment again – that has a big emotional impact.”
If you have had or anticipate a drop in income, doing a budget will help take back some control. First look at all your outgoings and see if you can jig things around.
“Can I pull back on my outgoings? Can I ring up an entertainment provider and get a more standard package to save a few quid? Are there subscriptions that I can defer or cancel? Are all my direct debits necessary right now?” says O’Hara. “We can support you in looking at your full financial situation and offer you advice.”
The one upside of lockdown is that it’s hard to spend money. We’ve all gone cold turkey on things we may have thought were “essentials” – like eating and drinking out, coffees and clothes. The only haircut you are getting right now is in your spending. Childcare fees, children’s activities, motor fuel and holidays are also either gone or reduced.
The average household spends €632 during a pandemic week (including housing costs) compared to €837 in a normal week, according to estimates from the ESRI.
We are spending almost twice as much on eating and drinking at home, however. That’s €194 on food consumed at home versus €97 normally and €21 on drinking at home, versus €11 normally. Meals away from home, including take out and coffee, drop from €26 to zero, say estimates.
Rainy day fund
It will be wiser in most instances to reduce your outgoings and use savings rather than extending with an overdraft or credit card. If you are lucky enough to have a rainy day fund, the rainy day is here, says Jonathan Sheahan of Compass Private Wealth. Stop paying in and start taking money out. Use this to pay your mortgage rather than take a payment holiday.
We are all experiencing a big and sudden downward hit, but much of the activity now stalled will resume when it is safe to do so – haircut anyone?
“There is nothing wrong with eating into that now because that’s what it’s for,” says Sheahan.
He advises to keep pension payments going if you can.
“You have to think long term for retirement and there is also tax relief. And as a lot of pension funds have fallen in value, now is the exact time to continue contributions if you can.
“But look at the year ahead. If you need the cash, that should be your priority.” Anyone putting money in a children’s education fund who anticipates cash flow problems can consider a contribution holiday or simply stop contributing.
Those over 50 with a defined contribution pension fund from a previous employer may be able to access 25 per cent of it now, tax free. The downside is the loss of potential growth in the years to come. But needs must.
We are all experiencing a big and sudden downward hit, but much of the activity now stalled will resume when it is safe to do so – haircut anyone?
As is the way with pandemics, we are all in this together. Institutions who didn’t cover themselves in glory in the last recession now have a chance to make amends.
Contact Mabs.ie 0761 07 2000 or Citizensinforamtion.ie or 0761 07 4000
