Two financial hot potatoes that keep getting passed on

Personal Finance columnist, Jill Kerby, in her MoneyTimes column, looks at two financial hot potatoes - mortgage arrears and pension affordability...

There are two pressing financial issues that will simply not go away: mortgage arrears and pension affordability. Last week, the Central Bank reminded us that 13 years after the great financial crisis and the collapse of the banks, mortgage borrowing continues to be more expensive and harder to access here than nearly anywhere else in the EU. In a meeting with the Banking and Payments Federation Ireland (BPFI) the deputy governor of the Central Bank, Ed Sibley, said that while “significant progress” has been made in resolving mortgage arrears over the last decade, solutions needed to be found for the remaining c52,000 mortgage holders who were still in deep arrears and that the banks had to do more “to make meaningful progress” in the resolution of those cases. Mr Sibley told the bankers that the Central Bank had identified the inadequate use of existing tools to deliver sustainable restructures, inconsistencies in their approaches to personal insolvency arrangements, inadequate consideration of diverse borrower demographics and the need for greater collaboration in seeking system-wide solutions for those in the deepest levels of distress. This also applied in the case of borrowers whose mortgage arrears are a result of the pandemic.

A revised Standard Financial Statement is to be issued by the Central Bank by January 2022, and that is expected to address those policy shortfalls but the deputy governor also urged borrowers, of whom there are thousands who have still not engaged fully with their lenders, “to pay what they can towards their mortgages – paying what you can will help reduce the accumulation of arrears, and reduce your financial burden. Borrowers who do not engage, and who do not pay anything towards their mortgage, are most at risk of repossession”.

Maybe. There are 10,451 accounts in arrears for between five and 10 years, and nearly 10,000 mortgage holders who have made no repayments in the previous six months to three years. Repossessions have only been a measure of last resort since the property crash of 2008 and no matter how much Mr Sibley believes it has to be part of the solution in 2021, those 52,148 mortgage holders in arrears are probably not in immediate peril of losing their homes.

What it does mean, however, is that “there are also wider issues associated with this [arrears] legacy – including the cost of credit for all, and the attractiveness of the Irish mortgage market for new entrants”, which has pushed up the cost of housing amounting to an extra €2,800 payment per annum on a typical €250.000, 30-year mortgage compared to what other Europeans are paying according to the price comparison site, bonkers.ie. The double whammy of negative equity and the ongoing arrears problem could have been sorted out sooner had a modern, workable insolvency regime been in place after the crash and had the Troika not forced the government to save the banks at the expense of the customers they so enthusiastically encouraged to over-borrow.

(The government was warned about this in 2012 at a packed insolvency conference I attended and hosted by Grant Thornton at which speakers from Norway, France and Greece, countries that had experienced historic property collapses, warned of the consequences of not tackling our mortgage arrears quickly, including re-pricing large numbers of properties to market value.)

Unfortunately for someone trying to buy a home today, settling our legacy mortgage arrears problem once and for all is unlikely in the short term: there are no votes in it. The best mortgage buyers can do is shop around for the most competitive interest rate available and if they qualify on income grounds, sign up for every new mortgage assistance scheme the government launches. See bonkers.ie and ccpc.ie for up-to-date mortgage rates and calculators.

The state retirement age is the other hot potato this month that many politicians will be trying to avoid. The Commission on Pensions was supposed to report to government last month on their findings about whether the proposed state pension age should be 67 and not 66, as it is currently.

That recommendation may be overdue, but last week a majority (83pc) of over 100 top pension experts surveyed by ITC, Ireland’s largest pension trustee company, said they expect the commission will find in favour of extending the pension age to 67 from next year and to 68, (in 2028 or 2029 as originally planned) Only 65pc believe the government will implement the finding.

Ninety-six per cent of ITC’s the respondents also believe that the public, and in particular people nearing retirement, are confused and uncertain about what is happening to their state entitlements.

Next week: Have you turned 65? Have you claimed your state Benefit Payment for 65-Year-Olds? Can you wait until age 67 for your State Pension?