Are you doing it right?

 Since 2008 Ireland has been struggling, but it seems that in spite of government action, we may have turned the corner. Keynesian counter-cyclical economic policies always sounded sensible to me – take money out of the economy to slow down during a boom (raise taxes, cut government expenditure, raise interest rates) and put money in to stimulate the economy during a recession (reduce taxes, increase government expenditure, lower interest rates to encourage savers to spend.)

In Ireland we have no control over Euro interest rates, but our austerity measures over recent years could not possibly stimulate growth. In fairness I suppose our options were limited and of course there is no such thing as a “free bailout”.  In the not-so-distant past, one notable finance minister reduced income tax rates when the economy was booming; a commentator used the phrase “throwing petrol on the fire”. Do we ever do it right?

As individuals we seem to make the same mistakes when we are investing. After years of record rises in property prices we continued buying property with cheap easy credit in 2006 and 2007.

It doesn’t end there. Investors in managed funds, usually via life assurance companies, were hit hard in 2008. Many got out in late 2008 and early 2009, crystallising their losses at the bottom of the market. Then they decided over the next five years to put their money on deposit. True, there would be little risk of losing their money but no chance of making any. In the period from April 2009 to 04/09/14, most managed funds with Zurich Life, for instance, have grown by at least 120% and some equity fund growth exceeded 230% over the period! While most people held on tightly to their savings on deposit, they failed to notice the massive growth in equity and indeed bond markets. They missed out – not doing it right

Now that we have had 5 years of rising equity prices, can you guess what’s happening with Irish investors? They are taking their money off deposit and investing in equity based funds, at a time when most funds and equity indices are at all time high valuations. Investing anytime in equities should be for a minimum period of 5 years, but going in when the signs are we may be close to the peak could lead to disappointment in the short term.

How do you do it right?

* Make sure your risk profile matches your portfolio risk. In this way you can limit the volatility of your portfolio, i.e. lose less and make less, in accordance with your own attitude to risk. Any of us as Financial Brokers throughout Ireland will be glad to help you calculate your own risk profile and recommend a combination of investment funds which overall match that risk profile number.  Your attitude to risk is likely to change so agree an annual investment review with your broker.

* Do NOT invest in equity or bond based funds unless you plan to stay in for at least 5 years.

Are you doing it right?

Good Financial Housekeeping

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10 reasons why pensions are still important

1. The State pension will reduce

There are too many retired people to be supported by the working population’s taxes and charges. This is going to get worse, even if the country isn’t broke in the future.

2. State pension age is increasing

We need something to plug the gap netween retiring from work at 65 but not getting the State pension until age 68 (or more).

3. Life expectancy is increasing

If people retiring today at 65 can reasonably expect to live for 23 years, they need plenty of money. 

4. Top rate income tax relief is still available on contributions

An investment today of Euro 5,900 means Euro 10,000 in your pension fund for a 41% tax payer. A retired married couple today, where at least one is aged 65 or more, can take a pension income of Euro 36,000 per annum without being liable for any income tax.

5. Lump sum of 25% of the pension fund can be taken

Subject to the Euro 200,000 limit, the lump sum will be tax free. Above that threshold a flat rate of 20% will be charged. Alternatively 1.5 times final salary tax free will be available on company/employer schemes, subject the the number of years service.

6. Wholesale price for life cover

a) Spouse can inherit the entire fund tax free. A defined contribution scheme limits the tax-free payout to 4 times salary plus full fund value of any AVC PRSA.

b) Additional life insurance can be included with the premium qualifying for top rate income tax relief – unlike standard life assurance policies.

7. ARF options for all

Have the option to draw down income as you need it rather than having to buy an income for life (annuity) when interest rates are low.

8. Inheritance planning

The pension fund doesn’t die with you when in an ARF. Instead it can be left to others in a tax-efficient way.

9. Gross roll up

During pre-retirement, the fund accumulates without charges for income tax or capital gains tax.

10. Investment range

There is a huge range of funds in which your pension can be invested. These should be reviewed regularly and be tailored to your risk profile. People who get ongoing advice usually end up with larger pension funds.

Good Financial Housekeeping

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Bankruptcy in Ireland still not ready!

It's an eye opener

It’s an eye opener

After a year of running a busy office with no clients, the doors of the Insolvency Service of Ireland are open for business. For people struggling with mortgage and other debt, the Personal Insolvency Arrangement was intended to be a solution, but you need to be able to afford to pay fees for this solution and you need the personal insolvency practitioner’s proposal to be accepted by your creditors.

If you don’t have a good stable income, then forget about it.

If you are “uni-banked”, then forget it.

The creditors need to vote to accept any proposal, so for people with a home mortgage and some unsecured debt, the mortgage lender has no reason to agree to a P.I.A. at all.

The fallback option is bankruptcy. It’s hard to believe that the 3 year bankruptcy  legislation has still not been signed into law as of 19th September 2013, so we are still stuck with the 12 year version. Officials have said “unofficially” that the new legislation will be retrospective, but this is not helpful to the people in desperate circumstances today. We just don’t seem to coordinate things well in this country. Maybe the State should employ a few wedding planners.

Good Financial Housekeeping


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Local Property Tax

Residential property tax came thirty years ago, was very unpopular and went again twenty years ago. The LPT is imminent, apparently because the troika is insisting on it. Pending its arrival this year, we have had the 200 annual NPPR levy (which again falls due in 2013 but is gone thereafter), the 90 PRTB registration fee every time you have a change of tenant (still with us) and the 100 household charge (an “interim measure” now gone but converted into LPT if not paid by 1 July next). Oh, and don’t forget the septic tank levy or the stamp duty you paid when you bought your property! 


The rate is 0.18% for residential properties valued less than 1m and 0.25% on any excess over 1m. Broadly speaking, an “owner” is liable to pay the LPT based on an ownership date, which is 1 May for 2013 (note it is 31 March for the NPPR). The 2013 liability is based on a half-year only. It is payable by all owners of Irish residential properties (unless an exemption applies – see below); that means overseas and company owners of Irish residential properties are liable to the LPT not just Irish individuals.

 Revenue have written out to property owners to provide their “estimate” of the property value, but have stressed that the estimate is not a valuation – it is up to the property owner to “self-assess” and choose the correct valuation band. The bands are up to 100,000 and then 50,000 increments up to 1 million; the mid-point in the band is chosen (i.e. LPT is 0.18% of 225,000 if your house is in the 200,000 to 250,000 band). The valuation chosen, assuming correct, is valid for four years. This Revenue correspondence should also include the LPT return (a two-page document) and Revenue LPT guidelines. A paper return is due to be filed by 7 May 2013, with online filers getting an extension to 28 May. Online filing is mandatory if you are already subject to the mandatory tax e-filing provisions or if you own more than one property. Payment is due for 2013 in July with a periodic direct debit payment option possible; that includes deduction at source from salary or pension or certain payments from two Government departments – Social Protection and Agriculture. Full or partial deferral is possible (there are seven possible scenarios where you can claim this by showing inability to pay) but interest applies to late payment. Note also that the 2014 payment won’t be far behind as it falls due in January 2014. You are obliged to file at least a month before the LPT is due – i.e. unlike many of the taxes already administered by Revenue, the pay and file date are not the same. There are thirteen possible categories for exemption, such as “trading stock” of construction companies that have not been rented and certain properties in some “ghost estates”, properties owned by a charity and used for “special needs accommodation”, mobile homes, diplomatic properties and properties fully subject to commercial rates. Presumably with a view to getting the residential market going again, first-time buyers or buyers of “trading stock” from developers are also exempt from LPT for four years. Self-employed taxpayers should be wary of failing to meet their LPT obligations. Sanctions include a potential surcharge as the relevant tax return is deemed to be filed late, which could lead to withholding of tax refunds or inability to get a tax clearance certificate. Furthermore, failure to pay LPT means it remains as a charge on the property and it cannot be sold unless the LPT liability is settled. Revenue have been active in the media, highlighting their mandate to collect LPT and also flagging that they are looking at various sources of data to ensure the register of residential properties they use as the basis for writing out to owners is as complete as possible. Of course, what is implicit in this is that the LPT will highlight owners who potentially have arrears of other taxes (e.g. NPPR or household charge or, if it is a rental property, undeclared rental income).

Good Financial Housekeeping



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Homeowners looking to write off mortgage debt

Slightly shortened version of yesterday’s Irish Independent article : Charlie Weston Personal Finance Editor – 21 March 2013

 Anyone seeking deals with their bank over debt will have to make drastic lifestyle changes under proposals to be announced next week. 

Homeowners looking to write off mortgage debt will be told, for example, to drop their health insurance and sell off their second car. New criteria setting out the living standards for people having debt written off will also force people to:

* Take their children out of private schools.

* Give up foreign holidays.

* Get rid of Sky Sports.

Up to 100,000 families are currently in arrears of at least three months on their mortgages, while the average borrower in trouble has four other debts. The new minimum income guidelines will be issued by the head of the Personal Insolvency Service, Lorcan O’Connor, and Justice Minister Alan Shatter next Wednesday. The official guidelines will set out what people can live on before being accepted for debt writedown deals to be overseen by the new insolvency service. But it is understood the guidelines will also be used by banks for those being offered a long-term mortgage deal outside the new personal insolvency process. Although the guidelines are not legally binding, banks will only do a deal with homeowners who cut their living standards in line with these rules.

Courts are expected to use them as a benchmark in any legal dispute where people cannot reach a deal with their banks. Although there will be an allowance for a basic TV package, such as Sky TV, the guidelines are likely to mean no Sky Sports.

But the fact that the guidelines make no allowance for a second family car and ban health insurance is set to be the most controversial aspect.

Experts said people in this country hold dearly to private health cover, with just 8.6pc of people dropping their health insurance since the financial crash in 2008. Some 2.099 million people have private insurance, 46pc of the population. And battles are set to be fought with banks by parents making sacrifices to send children to private schools.

A senior official familiar with the new guidelines said if people wanted €100,000 to €200,000 written off a mortgage they could not expect to have a foreign holiday every year and private health insurance. 

The guidelines set out how much different family units will be allowed to live on each month. Accordingly, a family in an urban area with two adults, but one income, would be allowed €896 a week. This family has a €1,500 monthly mortgage repayment, one teenager and one pre-teen. The new guidelines draw heavily on intensive research carried out by the Vincentian Partnership for Social Justice. Work on this minimum income standard was augmented by researchers from TrinityCollege and the Economic and Social Research Institute.

The new insolvency service is required under the new Personal Insolvency Act to produce guidelines on minimum living standards. Those who do not reach a deal with their creditors have the option of bankruptcy, where an official assignee will dictate what they have to live on. One finance expert, who has seen the new guidelines, described them as financial prison. But it is understood that Mr O’Connor of the insolvency service is conscious that people will be in a personal insolvency arrangement, involving mortgage debt for up to seven years. This is why he may be willing to allow for relaxation of the guidelines over time for those who keep to their agreements. There will also be scope for personal insolvency practitioners (Pips) to negotiate on the detail of what a family will get to live on under a personal insolvency arrangement.


It’s been said that a personal insolvency arrangement is only fair where both sides are unhappy with the arrangement! If a 200k debt write down is on offer on a 500k mortgage, then having a modest lifestyle for up to 7 years and keeping the property may be an attractive option. After the 7 years you continue paying off the 300k reducing balance mortgage and you will be in a better position to afford the “luxuries” you missed during the 7 years. The insolvency legislation requires further tweaking however to remove the right of the bank to come back in the future looking for more money. This could happen if the property is sold for more than the outstanding loan balance say in 10 or 20 years time!

Unfortunately this kind of arrangement is unlikely to be available to self-employed people as a P.I.A. arrangement requires a stable salary. A deal would have to be negotiated outside of the insolvency service as the only other option for self-employed people with mortgage debt is bankruptcy.  

Good Financial Housekeeping

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Bank Of Ireland Hikes Tracker Mortgage Rates

Although this article is about Bank of Ireland in the U.K., is there any reason the same thing won’t happen in Ireland? Last out turn off the lights please!

Customers are left furious after a leading bank hikes rates on its tracker mortgages – despite no change in the base rate. Some 13,500 UK homeowners face a steep increase in mortgage payments as the Bank of Ireland doubles the rates on some loans. Customers vented anger online following the news, with some saying their costs will jump by as much as £500 a month.

The changes – which affect mainly buy-to-let base rate tracker mortgages- come despite the key rate being held at a record 0.5% low for four years by the Bank of England (BoE).

Over 170 comments – many from angry customers – were posted on the web forum after the Bank of Ireland sent letters to those affected. Forum user ‘smiffy’ said the interest payment on their mortgage would increase from £243 to £780 a month. “I can fund a £100 per month increase I need to find over £500!” they wrote. While ‘plimsolls_on’ posted: “I am in the Bank of Ireland boat stuck up a creek with no paddle….”My rate will increase from 1.35% to 4.49%.” A number of customers said they planned to write to the bank and the Financial Ombudsmen to complain.

The changes mean that a buy-to-let mortgage holder who is currently on a typical interest rate of 2.25%, made up of the base rate plus 1.75%, will see their rate climb to 4.99% from May 1. The Bank Of Ireland said the average monthly increase would be £145 a month. Residential mortgage customers will see their rates eventually jump to 4.49% based on the current BoE rate. The increase for these customers will be introduced in two stages – from May 1, the rate will be the BoE rate plus 2.49%, followed by another rise to the BoE rate plus 3.99% on October 1. 

Ray Boulger, a mortgage industry expert at John Charcol, said he was surprised by the move. “My initial reaction was shock – it’s extremely shoddy practice,” he told Sky News. “If the Bank of Ireland was looking for a way to maximise the distrust of banks, they have succeeded.” He added that a clear justification of the hike was lacking: “They Bank of Ireland need to explain why they think they can get away with this.” 

In a statement, the bank said: “This change reflects the significant increase in the cost of funding these mortgages since 2008 and the need for banks to maintain greater levels of capital.” But Mr Boulger said a change in market conditions was not sufficient to explain the move. “If you enter into a contract and you say you’ll provide funds at a certain rate and, during the terms of that contract conditions change, that’s bad luck,” he said. “It’s a business risk that banks take on when they offer mortgages.”


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Protection for unmarried couples

Do unmarried couples have enough protection?

The problem

1 in 10 adults in Ireland are co-habiting.

Are some of your clients in this group? Most people are aware that inheritances passing between married couples or registered civil partners are exempt from inheritance tax. This exemption only applies for legal spouses and registered civil partners. All other co-habiting couples are treated as strangers for inheritance tax purposes.

The ‘stranger’ tax-free threshold for inheritance tax is, in 2013, €15,075.

Inheritances (in 2013) that are in excess of €15,075 are subject to tax at a rate of 33%.

For example:

John and Mary buy a home in joint names. They contribute equally to the deposit, the mortgage repayments and the joint mortgage protection policy. The home is valued at €300,000.

John dies in the first year of their living together. The mortgage is cleared by the mortgage protection policy.

Mary inherits 50% of the property, assuming it was owned as joint tenants.

Mary’s tax-free threshold is €15,075, with the balance of €134,925 taxable at 33% resulting in a tax bill of €44,525.

The solution

Increase mortgage protection policy by €45,000 (but there’s a possible tax charge on that money, €45,000 at 33% = €15,000) or;

ask your broker about taking out a “life of another” policy for €45,000.

Good Financial Housekeeping – Email if you would like further information.

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Personal Insolvency in Ireland 2013

It’s finally here, the legislation is in place and we’re ready to go. Well, not quite ready. According to Lorcan O’Connor, Director-designate of the State setup Insolvency Service of Ireland, they don’t expect to be able to receive any applications until at least the 2nd quarter of this year. I would be surprised if there any applications before the summer.

In the meantime people who would like to seek debt relief should be talking to their creditors. Most of the arrangements that will be available under the Personal Insolvency Act will depend on the cooperation and approval of 65% of the creditors. Creditors will generally lose out most if the bankruptcy option is chosen as the costs come out of the pot before the creditors are even considered.

Options available:

– Debt Relief Notice

– Debt Settlement Arrangement

– Personal Insolvency Arrangement

– Debt Management

– Bankruptcy

Welcome to a brave new world.

Good Financial Housekeeping

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Moody’s: Negative Equity will now be the Key Driver of Default in Irish residential mortgages in 2013

Extract from: Global Credit Research – 19 Sep 2012

Moody’s predict Irish residential mortgages defaults to peak at 20% in early 2013. However, uncertainty over the full extent of losses remains as a result of the growing effect of moral hazard. Expect  defaults on unsustainable mortgage debt to typically result in debt forgiveness rather than repossession.

The key driver of future defaults will be loans originated with high loan-to-value ratios (LTVs) in the run-up to the crisis, which are now in the deepest negative equity.

The current dearth of repossessions and the recently proposed personal insolvency legislation is starting to result in higher defaults due to moral hazard. Borrowers with loans in negative equity are more likely to default even when they have the financial capacity to pay because they stand to benefit most from the legislation. Unemployment has been broadly flat since 2010 and is therefore less of a key driver of recent defaults.

While Moody’s notes that other characteristics will persist as key default drivers, these will be outweighed by the impact of negative equity on future defaults. These key default drivers to date include (1) self-employed borrowers; (2) loans taken out for the purpose of a buy-to-let (BTL) investment; and (3) loans originated outside of Dublin and Cork.

Moody’s report on “Key Drivers of Default in Irish RMBS Pools Will Persist in 2013” is now available on

Good Financial Housekeeping – If you are in negative equity and would like to explore your options, email


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Life Mastery – The Lantern Centre

I had the pleasure of addressing the participants of Wallace Huey’s Life Mastery seminar last night at the Lantern Centre, Synge Street, Dublin 2. My subject matter following Wallace’s excellent seminar was “Help with Debt” and I had the opportunity to briefly outline how I am currently helping people who may be struggling with debt. 

There is light

I believe that everyone knows at least one person who is under financial pressure and I would encourage any reader to get help for those who are suffering. Whether you bring them to MABS for their free service or to someone like me, please do something. Debt problems bring huge negatives to people’s lives. Help with debt is available. Take action today.

I would also suggest looking at the Life Mastery coaching seminars by accessing the link, especially for anyone living in the greater Dublin area. Last night’s session in the Lantern Centre focussed on loving relationships. Although I was there as a guest, I was happy to pick up a few pointers, thanks to Wallace. 

Good Financial Housekeeping

The Loan Arranger

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