By Frank Conway
The latest mortgage statistics from the Bank Payments Federation of Ireland reveals there has been a relatively modest rate of growth in mortgage lending through the 2nd quarter of 2018. At a first glance, it looks reasonably healthy.
However, when reviewed on a historical basis, mortgage lending in Ireland is extremely low.
If we consider the primary elements of mortgage lending today, while there are five main categories; First Time Buyer (FTB), Second Time Buyer (STB), Buy-to-Let (BTL), Top Up and Switcher, in order to accurately compare current lending statistics to the 1970’s, ‘80’s, 90’s and early part of the 21st Century, we need to strip out the last two of the five categories; Top-Up and Switcher.
On this basis, lending to the FTB, STB and BTL in the first half of 2018 is 13,700. Extrapolating this out for the full year and factoring in an acceleration in mortgage drawdowns at the end of the year, the maximum level of lending to the three primary mortgage categories might reach 36,000 units by year-end. Not bad when compared to the 29,300 mortgages originated in 2017. It would represent a fairly healthy rate of growth…until we look back to the 1980’s.
Mortgage lending statistics provided by Government report lending activity between 1970 and 2006. The BPFI began tracking and reporting mortgage lending from 2003 so there are four years of overlap between the Government and BPFI statistics. When the Government and BPFI figures are compared, they are closely aligned on the primary categories; FTB, STB and BTL. For example, using the BPFI statistics, in 2006, there were 110,790 FTB, STB and BTL mortgages; the Government statistics show 111,253 mortgages were drawn down in 2006.
Comparing the historical data, mortgage lending today compares to the level of lending in the late 1980’s. In 1988, there were 36,800 mortgages drawn down. This at a time when the population of Ireland was 3.5Million, over a million less than today.
So, to put this into context, mortgage lending today is actually lower per household than it was in 1979 when we factor in the total population of Ireland versus the number of mortgages drawn down…assuming we reach 36,000 units this year. Equally, it will match 1989 on an absolute basis. Regardless of which way the numbers sliced, mortgage lending, despite the year-on-year growth over the past few years remains extremely low.
It’s never been so easy to lose money.
Armed with just a 16-digit account number and a working smart phone, it is now possible to tap one’s entire take-home pay from the seclusion of a kitchen table. And worse, when that take-home pay runs out, leverage debt from a myriad of sources to fuel an addiction that even close family members may have no knowledge of.
It’s happening every day across Ireland and it is pervasive. Blind to gender, age, or financial capacity, it destroys family finances, relationships and even careers.
Recently, when speaking at a secondary school, TY students expressed an intense interest in the topic. In particular, they wanted to know just how much of the gambling account details might show up on a monthly current account statement.
“Can they see if someone is gambling with such-and-such company” they asked. And they asked it over and over. It wasn’t just a passing interest, it was a pointed interest, they seemed to be admitting that gambling had touched their lives; either personally or through a family member, relative or friend.
In that TY class, we were discussing the impact gambling could have on key life decisions…like buying a home. It was a fairly high-level discussion at first but it was enough to get TY students thinking seriously about the wider implications of a gambling habit. It was poignant moment; rarely do money matters excite secondary school students but once the lessons are personalised, individualized and boiled down to the very issues that impact them personally it is possible to get them to sit up, listen and participate!
Across the Globe, Governments are slowly beginning to take action. Just this week, the Italian Government passed a series of new laws that restrict advertising for gambling on the internet; it’s early days but the Italians appear to be putting the financial well-being of Italians ahead of gambling firms.
Here in Ireland, what was once a referred to as a “little bit of an interest” is now being weaponized much as the US gun lobby has weaponized the 2nd Amendment Right to bear arms over there. Some argue that gambling is part of Irish culture but this is a myth created by an industry that needs broad acceptance. Previous Irish generations simply did not gamble in significant numbers. Today, gambling is at risk of becoming a financial blight across the entire Irish landscape.
To put this in more basic terms, Irish people have never been so exposed financially. An employee today could work for a single firm for 40 years and still end up with no private pension. If they were in employment 20 or 30 years ago and retiring today, they may well have either a final salary pension or some other form of financial nest egg; employees today are being left far more vulnerable than previous generations. This is why it is so important they create the financial capacity to build that nest egg; gambling is a significant threat that undermines that.
Reducing the seamless flow of contactless payments to gambling services would be one way to level the playing field. For example, restricting the automatic links between debit cards and gambling accounts and banning credit card debt being used to fund betting would have an immediate impact. Other measures should include increasing the taxation on sports bet winnings to 33% and increasing VAT on betting to 23%. Case in point, if an Irish widow today decides to cash in her Glanbia shares and after years of patience and hard work, earns €3,000, she is liable for a 33% rate of capital gains tax on any of the profit. This is payable even where she may have no other source of income other than the State pension. How is this fair? Of course, we all know it is not!
The Irish pub used to be dressed up as the soul of Irishness with ketch hybrids exported across the globe. In reality, true Irishness is far richer and way too complex to be boiled down a single experience. Gambling is today’s Irish pub. For the sake of our collective financial well-being, it’s time to make them step up to the plate and pay their fair share.
There are a few simple rules when it comes to managing your money and a key Golden Rule is to live well within your means and to ignore the Joneses. “Emotional spending can be the death of a family budget where some people will spend beyond their means to keep up appearances,” says Qualified Financial Adviser Frank Conway, founder of MoneyWhizz financial education services.
Case in point: Sylvia Bloom, a legal secretary from New York City that lived in a modest, rent-controlled apartment and worked into her 90s, bequeathed over $8 million local charities. And despite having amassed great wealth, still took the New York subway to work every day, even during some of the worst weather to hit New York City.
While the general rule of thumb is to save between 10 to 20 percent of your income, secret millionaires often put away much more—but they didn’t just save, they also understood the value of money declines over time so they invested their modest incomes to ensure it kept it’s buying power over time.
Secret millionaires know the benefits of being patient when it comes to investing. While this can be a challenge for even the most seasoned investors, those that are determined to build some wealth, even from modest incomes know that patience is a real virtue.
Since 1929, the US stock market has risen by about 8% when inflation is factored in. But other market indices have grown by far more and it is this rule that secret investors use to their advantage. Some secret millionaires held stock for 70 years or more, they stayed firm during the bad times, even buying more company stock when values were low. In fact, secret millionaires often reinvest their dividends which adds to the overall rate of growth over time through accelerated compounding.
Secret millionaires are also inventive when it comes to earning income, after all, this is the original ‘seed money’ to any savings and investments strategy. For example, claiming back taxes on medical expenses and even using the benefits of Rent-a-Room relief (€14,000 per year) are some of the ways it is possible to earn some extra income (remember, this is the Government giving tax back so its free money).
Some of the biggest ‘everyday’ expenses people have during their lifetime are clothing and cars. In the case of one secret millionaire in the US Sate of Vermont, Ronald Read drove a used Toyota Yaris and parked at the edge of town thus avoiding the cost of paying for parking. He left over US$8 Million to local charities, wealth he generated from years of successful (and patient) investing.
“The question most people must ask themselves is what their purchase actually provides. Does it provide a need or a want; one may need a car but want a luxury brand and this is where financial loss happens all of the time” said Mr. Conway.
Living in a culture where celebrities are paid handsomely to promote goods and services all of the time, it can be a challenge for some people not to be taken in by the hype. Unfortunately, those are the same people that will never have that little extra cash to invest for the future.
Many secret investors took the time to understand the core issues of compounding growth, risk, diversification, the negative impact inflation has on the long-term value of money and so, they invest accordingly. Here in Ireland, many adults struggle with such basic concepts and as a result, make poorer investment decisions. But it is never too late to start and for those in their twenties and thirties, the time is perfect.