How to help your money beat inflation

How to help your money beat inflation

Posted on 18Jul

Whether you’re a careful saver or – thanks to the pandemic – an accidental one, the twin forces of zero interest rates and rising prices are creating a perfect storm that will slowly wear away the value of your cash pile if you leave it languishing in a deposit account.

According to the Central Bank, the startling rise in savings growth over the past year has actually tapered off over the last couple of months as the lockdown finally starts to lift, but ordinary households are still lodging cash in bank accounts at record levels – whether they want to or not.

But if you’re worried about the value of your fund being eaten away by inflation over the next year, what are your options?

1. Invest it

Assuming you are happy to lock away a sum of money for the medium to long term, an investment strategy – whether that’s putting your money into an investment fund or managing your own investments yourself – is well worth looking at. Needless to say, there’s always an element of risk, but there are ways to mitigate this and still deliver a return that beats inflation.

“I would generally direct those interested in beating inflation to look at the managed funds route and, in particular, the index funds, ETFs (exchange-traded funds) or even managed funds from the likes of passive leaders Vanguard or even Fidelity and Dimensional,” says Frank Conway of financial wellbeing provider MoneyWhizz and a qualified financial adviser.

“Other more actively-based managers can be more expensive and this will erode the long-term growth of money without necessarily achieving any more actual real growth compared to their passive options.”

For those happy to try the DIY route using online investment platforms or brokers, equities is “where the real inflation-proofing can take shape”, Conway says, but it still takes a lot of work and research.

“It goes without saying that a good supply of reason and less emotion is required to stand a chance of success. As equity prices rise and fall, the investor needs to take reasonable profits as they happen and also, limit losses.”

Property is riskier, he adds, unless you have significant funds to play with and you are familiar with the landscape of the sector.

2. Up your pension contributions

Paying more into your pension appears to be a popular move, according to a recent survey of pension advisors by the Independent Trustee Company, with more than four in 10 people increasing their contributions during the pandemic. It’s easy to see why, as paying into your pension has not one, but two tricks up its sleeve in any battle with inflation.

The first is that your pension will be invested in a broad base of assets, such as stocks and shares, property and bonds, that should help beat inflation in the long-term.

The second is the tax relief, at 20pc or 40pc whichever is your higher rate of income tax. So for every €100 you contribute, the real cost to you is only €80 or €60. There’s also the tax relief on the investment gains as well as the cash lump sum you can take when you retire.

You should be aiming for your pension to be worth at least twice the value of your home when you retire, according to Mark Reilly of Royal London. “€500,000 sounds like a big fund, but it might only provide you with an income of just over €1,100 a month for the rest of your life after you retire at age 60,” he says. So paying into your pension as a long-term inflation-buster is hard to beat.

You can also make additional voluntary contributions (AVC) to your pension fund that allow you to take full advantage of the tax relief.

3. Overpay your mortgage

Paying more into your mortgage may also have a lot to be said for it, as it could cut your mortgage term and save you thousands, but it’s worth taking advice on this if you’re not sure.

“We would advise any mortgage holder to give careful consideration as to whether they have access to a rainy-day emergency fund before using all savings to reduce their mortgage amount,” says Joey Sheahan of broker MyMortgages.ie and author of The Mortgage Coach. If you do have a sufficient rainy-day fund, then go for it but do run the figures past your lender or broker first, he says.

“If you had, say, a mortgage of €300,000 at 3pc interest over 30 years, you could save €5,200 by paying off a lump sum of €10,000, €10,400 by paying off a lump sum of €20,000, or €15,600 by paying off a lump sum of €30,000. Alternatively, by overpaying €100 a month, you could save nearly €20,000 over term of mortgage, and nearly €35,000 by overpaying €200 monthly.”

However, at least one advisor believes overpaying your mortgage shouldn’t be top of your list of inflation-beaters. “As an ‘investment’ option, it is overrated, oversubscribed to and under-delivers on value,” said Conway.

4. Pay down debt

At the same time as accumulating savings, more people have been using their extra cash to reduce debt, but the rate of household debt hasn’t been falling as sharply as the savings pile has been growing. Furthermore, the number of borrowers taking out personal insolvency arrangements (PIAs) hasn’t fallen much.

So if you have any ‘bad’ debt (i.e. consumer debt such as credit cards and personal loans that do little to improve your financial outcomes), using your savings to pay these higher-interest debts off is highly recommended.

Rank these debts starting with the most expensive (i.e. with the highest interest rates) and clear these first.

It is essential to check that there are no penalties for paying early. PCP car loans, because of the way they are structured, may not be a candidate for early repayment.

If your credit card bill is larger than your fund, an option is to transfer to a provider like An Post Money, who give you 12 months to repay at a zero interest rate.

5. Spend it on a big ticket item

If you already have a decent rainy-day fund, you’ve no bad debt, your mortgage interest is reasonable (if not, switch), and you’re happy with your current level of pension contributions, then of course treat yourself to a big-ticket item. If your hopes of splashing out on a summer 2021 holiday were dashed by the Delta variant, there’s always summer 2022. But if you’re happy to spend now, you can still be sensible about it.

For instance, buying a new car – particularly if it’s an EV (electric vehicle) – may be a better bet than a nearly new or a 3-5 year old model because used car prices here have stiffened considerably thanks mainly to Brexit putting a dampener on used car imports from the UK, where a lot of the best value used to be found. You will have to pay far more for a used car than you would have this time last year, and this is good news if you have a not-too-ancient car to trade in (unless it’s on a PCP deal).

Alternatively, if your home’s BER (Building Energy Efficiency) rating could be improved, spending money on a retrofit that improves your home’s energy efficiency is a great way to spend on a big-ticket item that will ultimately improve your financial outcomes – ie increase the market value of your home and save on energy bills. The Sustainable Energy Authority of Ireland provides grants that will subsidise up to 35pc of the cost of a retrofit, which could include measures like external wall insulation, new glazing, solar panels and air to water heat pumps. That said, the cost to the average household of bringing up their home to a B2 rating is €30,000-€40,000, leaving you with a final bill of around €26,000, so you may need to borrow a little.

If you do, there are a couple of schemes that can manage the whole process for you, including the finance and the project management. One of them is ProEnergy Homes, run by the Credit Union Development Association in partnership with SEAI and Retrofit Energy Ireland.

Source: https://www.msn.com/en-ie/money/other/how-to-help-your-money-beat-inflation/ar-AAMhaeR


‘I am facing an enormous tax bill on a house I inherited from my godmother – what are my options?’

Posted on 02Jul

I was left a house by my godmother who died last Christmas. She was my mother’s best friend, but we weren’t related by blood. My mother was very ill during my childhood and she took me in for a few years. She never married or had children herself and, in turn, I cared for her in her final years. I didn’t ask for the house, or put her under any duress for it. I say this only to stress the close relationship we had. I now discover to my horror that I am expected to pay an enormous tax bill on the house, far more than if I was her daughter or niece. Can this be fair?

Fair or not, you are caught by the rules surrounding inheritance taxes which place a far higher monetary value on blood relationships than friendships.

The maximum tax free amount that you can generally receive from a disponer (the person who died) who is not a linear relative is €16,250, under Group C thresholds relating to Capital Acquisitions Tax (CAT), with the remainder taxed at 33pc. This includes any other gifts received during their lifetime.

It’s a common issue, but not to be glib about it, you have a wonderful bequest left to you which I’m sure is welcome.

You don’t say how much the property is worth, but you will be required to have it valued at market rates and calculate the tax accordingly.

This may unfortunately involve selling it in order to meet the bill, although it may well be possible to get a mortgage on it, which would be less than you would have to borrow to buy it outright. I don’t know your age or circumstances, but a bank would certainly be open to that sort of arrangement.

I don’t know about your current living arrangements, but this bill may have a possible mitigation.

You say you were your godmother’s carer. If you lived with her as such, you may be able to claim Dwelling House Relief against the tax due. The conditions are strict, however, so I don’t want to get your hopes up:

The house must have been your only or main home for the three years before the date of the inheritance, and you must not own or have an interest in any other house.

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It must also have been the main home of your godmother. It must remain as your only or main home for six years after the date of inheritance (unless you are over 65 or are required by reason of employment or infirmity to live elsewhere). If you meet these criteria, then no CAT liability will be levied on your bequest.

The exemption will be withdrawn, even at a later date, if you sell the house and don’t replace it with another principal dwelling, or cease to occupy it, within six years.

If you believe you could be exempt from it would be worth getting in touch with a solicitor or tax advisor to make sure the requirements are all met and they can go about settling the paperwork involved.

Q I am married and my spouse and I are both healthcare workers, with three children aged 16, 13 and 10. My husband is 64, I’m 44.

We’ve been to few banks and inquired about applying for mortgage, but were only offered a very small amount and for a short term due to my husband’s age. We’ve been renting and paying nearly €2,000 a month for a three-bedroom house excluding bills. We are getting worried that the rent may increase again.

Do you know if there’s any other option for us or any recommendations that you can share?

Banks generally don’t like borrowers who are nearing retirement age and tend only to permit mortgages (or indeed loans of any kind) to 65, or 70 at a push with Bank of Ireland. The credit union may well offer you a loan and be a little more flexible. It’s certainly worth a meeting; many of the larger ones are now offering mortgages, but honestly, I think it’s probably a long shot.

I asked Joey Sheahan, Head of Credit at MyMortgages.ie and author of The Mortgage Coach to look at your query and she said: “Some banks will allow a married person to apply on their own despite being married. The benefit of this is that you can avail of the longer term mortgage, to the age of 70.

“So, in your case, this would be a 26-year term mortgage. The downside is that you can only use your own salary and borrow 3.5 times that amount. If you are a civil servant, then you potentially can move two points up on the pay scale and borrow 3.5 the increased salary amount.

“Sole applicants can also benefit where a spouse has an adverse credit rating or is not a first time buyer”.

The best of luck with mortgage hunting. A call to a mortgage broker may help ease your path.

Source: https://www.independent.ie/life/home-garden/homes/i-am-facing-an-enormous-tax-bill-on-a-house-i-inherited-from-my-godmother-what-are-my-options-40604412.html


Mortgage approvals surge, adding further pressure to the housing market

Posted on 29Jun
‘May has proven to be yet another very strong month for mortgage approvals activity, especially for first-time buyers.’

The severe pressure on Ireland’s housing market is showing no signs of easing, with mortgage approvals over the past 12 months surging to just under €12bn.

The latest figures from the banking industry show more mortgages were approved in the last year to homebuyers and builders than in any 12-month period since they first began recording figures in 2011.

According to the Banking & Payments Federation Ireland (BPFI), the number of new mortgages approved by banks in May jumped 7.4% compared to April. Of the €1.2bn in new mortgages approved last month, first-time buyers accounted for €643m, or 55.4%.

The new figures come as a range of reports were published this week confirming that the shortage of supply of appropriate homes is resulting in significant house price increases.

A report from property website MyHome.ie in association with Davy shows prices rising by 6.7% across the country over the past three months. Homes outside Dublin have seen the largest price increase, up more than 7% for the second quarter, and up 13.6% compared to 2020.

Speaking on the latest mortgage figures BPFI chief executive Brian Hayes said that May has proven to be yet another very strong month for mortgage approvals activity, especially for first-time buyers.

“Similar to the trend we saw emerge last month, we have seen a doubling of activity across many mortgage categories,” he said.

“It is important we view these figures in the context of how the country was operating in May 2021 compared to 12 months earlier.

While a number of Covid restrictions were lifted in May, lenders and customers had also adjusted much better to working within the restrictions and this is clearly borne out by the figures.”

In the 12 months ending May 2021, there were 48,935 mortgage approvals, valued at a total of €11.9bn. During this period, more loans were approved for home buyers/builders than in any 12-month period since the data series began in 2011 at 38,882. In value terms, approvals for home buyers or those building neared €10bn for the first time.

“These are significant figures, and very much signal a robust pipeline for drawdown activity later in the year,” Mr Hayes said.

MyHome.ie managing director Angela Keegan said it appears that the savings generated by homebuying professionals during various lockdowns have helped fuel property price inflation while also diluting the effect of the Central Bank’s mortgage lending rules.

Her comments are backed up by Joey Sheahan, head of credit at homes loan broker MyMortgages.ie.

We’re seeing much larger deposits as a result of pandemic savings, which are allowing people to look at larger properties than they might have otherwise had the financial capacity to do,” he said.

“Coupled with larger deposits, there is a desire to create home working spaces, and so we’re seeing people stretching for four and five-bed properties as a result.

“Tech workers, in particular, are favouring larger homes, which will allow for home working in the longer term.”

Source: https://www.irishexaminer.com/business/economy/arid-40324541.html


Spanish bank to shake up mortgage market here with 30-year fixed-rate loans

Posted on 23Jun

The latest move means mortgage offerings here are finally starting to resemble those in the likes of Spain and France

Spanish-owned mortgage provider Avant Money has upped the ante on its rivals by offering a range of new long-term fixed rates.

The provider is the first here to offer a 30-year fixed rate, in a move that has the potential to transform the mortgage market.

This means repayments will be the same every month for the life of the loan.

Its new continental-style offerings, for between 15 and 30 years, have rates as low as 2.25pc.

The suite of new long-term fixed rates from Avant Money comes weeks after non-bank lender Finance Ireland surprised the market when it launched an innovative 20-year mortgage.

Long-term fixes are a feature of mortgages on the continent, where rates from around 2pc are common.

The latest moves mean mortgage offerings here are finally starting to resemble those in the likes of Spain and France, despite the imminent departure of Ulster Bank and KBC.

Wholesale interest rates are at historic lows, with homeowners here mainly taking out fixed rates over increasingly longer period.

This means long-term fixed rates are starting to attract interest from borrowers here.

Now Avant Money has launched 15-, 20-, 25- and 30-year mortgages. The rates vary depending on the amount being borrowed relative to the value of the home, but are lower than those offered on most shorter-term home loans.

A rate of 2.85pc will apply for those borrowing over 30 years who are borrowing 60pc or less of the value of the home.

For those with a loan-to-value of 80pc the rate rises to 3.1pc. For those borrowing over 15 years, with a loan-to-value of 60pc, the new rate is 2.25pc.

Avant Money, owned by Spain’s Bankinter, shook up the market here last September when it launched offering the lowest rates. Its lowest rate is 1.95pc, considerably cheaper than its rivals.

The new products will have flexibilities built in. Avant Money will allow borrowers to overpay up to 10pc.

There will be a cap on the fees for redeeming the mortgage, and flexible options if moving home. Those moving will be able to port the existing mortgage to a new home.

Loans can be repayable up to the age of 70.

Switchers and movers are expected to be the most likely to take up the new products, but first-time buyers with big deposits may also find the certainty of a long-term fix attractive.

Head of mortgages for Avant Money Brian Lande said the new offers would allow Irish consumers the opportunity to lock into fixed rates for their full mortgage term at a time when interest rates are at a historical low.

“I’m also delighted to confirm that we will be extending these new flexible features to all of our existing and new customers across our product range,” he said.

In May, Avant Money cut a number of its rates, and launched four- and 10-year fixed rates, which are the lowest in the market.

This is in addition to having the lowest rate of 1.95pc for those whose mortgages are 60pc or less of the value of their homes.

Its aggressive pricing will be a relief to buyers and switchers as Ireland continues to have some of the most expensive mortgages in the Eurozone.

With the imminent departure of Ulster Bank and KBC, Avant Money is aiming to become the fourth largest provider of mortgages here after AIB, Bank of Ireland and Permanent TSB.

Source: https://www.independent.ie/business/personal-finance/property-mortgages/spanish-bank-to-shake-up-mortgage-market-here-with-30-year-fixed-rate-loans-40552755.html

Joey Sheahan, Head of Credit and Author of The Mortgage Coach, MyMortgages.ie

“ This is great news for mortgage holders in Ireland. Not only does a 30 year fixed term offer the promise of a guaranteed level of mortgage repayments over the long term for those mortgage holders who opt for it, it also represents a step in the right direction for the Irish mortgage market. We are catching up with our European counterparts when it comes to fixed rates – and overall better value on rates.

Other lenders will now find themselves under pressure to develop and offer better mortgage products so as to remain competitive.

Mortgage holders may well be confused or unsure as to whether a long term fixed rate is the best route for them, so we are urging anyone considering their options to contact a broker who can take an overall assessment of their individual situation and advise them as to the best course of action”. 


Blow for first-time buyers as two major banks cut off mortgage exemptions

Posted on 26May

Two major mortgage lenders have already reached the limit of how many exemptions to the Central Bank’s mortgage rules they are allowed to offer in a year.

Lenders are allowed to offer more than the strict rules of 3.5 times income and allow less than 20% in a proportion of their loans over a year. It means PTSB and KBC can no longer offer borrowers the mortgage exemptions that allow for loans over the threshold.  

Banks and other lenders have the freedom to lend a certain amount above these limits. In any one calendar year they can give an allowance of up to 5% of the value of mortgages to first-time buyers and up to 20% of the value of mortgages to second and subsequent buyers, and up to 10% of the value of mortgages to buy-to-let buyers.

Both lenders Permanent TSB and KBC, which recently announced it was leaving the Irish market, have used up the exemptions from the rule limiting the amount they can borrow relative to their incomes.

Many first-time buyers need an exemption to the loan-to-income rule, especially in cities where property prices are higher.

PTSB and KBC’s ending of exemptions comes as the Central Bank said it was holding ‘listening and engagement events’ next month as part of a review of the lending limits. The review will look at the effectiveness of rules and whether they have achieved their aims.

Association of Irish Mortgage Advisors chairman Trevor Grant said yesterday: ‘While this might seem like a blow to first-time buyers, we are advising people not to be disheartened; there are still a number of lenders offering exemptions, and this cycle will correct itself later in the year.

‘It does, however, highlight the importance of the mortgage application process itself and of ensuring that all the boxes are ticked when it comes to approaching a lender for approval.

‘When trying to secure a mortgage, it is imperative that applicants know exactly what lenders are looking for and how to present their particular case to them.’

Mortgage brokers have been flooded with calls from worried first-time mortgage applicants hoping to secure a home-loan.

Joey Sheahan, of MyMortgages.ie, said: ‘Our advice to all has been not to panic.

‘There are still four banks open to exemptions for first-time buyers – Haven, ICS, Finance Ireland, Ulster Bank – while PTSB has not closed off the option for second-plus-time-buyers. We are however, suggesting to those who are mortgage ready, not to delay.

The mortgage market is in a state of flux, as we have seen over the last few months with news of lenders leaving.

‘There has been good news too – most recently from Finance Ireland in relation to its longterm fixed rates.

‘All in all, there are still several banks very much open to new business, so those looking for a mortgage should continue as planned – a very many will be successful.

Source: evoke.ie/2021/05/26/evoke/blow-for-first-time-buyers-as-two-major-banks-cut-off-mortgage-exemptions


Making Cents: 20-year fixed rate ‘a big day for Irish mortgage market’

Posted on 18May

The maximum term of 20 years is twice as long as currently available to Irish mortgage customers.

While home-buying has been making headlines for all the wrong reasons of late, there has been some positive news for potential borrowers, with a number of new rates and long-term fixed rate options announced last week.

Finance Ireland – company which first entered the residential mortgage market in 2018 – launched a range of long dated fixed rate mortgages for owner occupiers.

The maximum term of 20 years is twice as long as currently available to Irish mortgage customers. It will mean that many home buyers may be able to have a fixed rate for the full term of their mortgage.

Finance Ireland CEO Billy Kane says the long dated fixed rates will allow customers to benefit from the ’historically low interest rates now available’.

“These fixed terms combined with flexible features provide exceptional certainty for customers and are a stated priority of the Government (ref: Programme for Government),” Mr Kane said.

Indeed the lender is partially backed by the Government, with the Ireland Strategic Investment Fund (ISIF) owning 30% of the business.

“We only distribute our mortgages through regulated intermediaries which ensures that all of our customers have advice about the suitability of any product to their specific needs,” Mr Kane added.

The fixed rate terms launched by Finance Ireland are for periods of 10, 15 and 20 years. The fixed rates range from 2.40% to 2.99% (annual percentage rate of charge (APRC): 2.58% – 3.06%) depending on Loan to Value (LTV) and the fixed term period. A 20 year fixed rate mortgage for up to 90% of the value of the home is priced at 2.99% (APRC: 3.06%).

Mortgage expert Martina Hennessy, Managing Director of doddl.ie, said the provider’s new offerings were structured to appease traditional concerns about long-term fixed rate products.

“In addressing four keys ways why long -term fixed rates may appear unattractive to Irish consumers, Finance Ireland is introducing a unique offering to the Irish market,” Ms Hennessy said.

The rate will reduce over time, you can overpay up to 10% of your outstanding balance without charges, the rate is portable and there is a capped break penalty.

“Their 15 and 20 year fixed rates are products that we see elsewhere in the eurozone, where rates are lower.

“Uniquely, with this fixed-rate product, if your loan to value drops then your rate will fall over time, assuming your value holds or increases.” The fixed rate will decrease as the loan is paid down versus the property value. Finance Ireland have also said LTV (loan-to-value) driven reductions to a customer’s fixed rate will be downward only – rates will never increase even were there to be a deterioration in house value versus loan outstanding.” Ms Hennesy also sees the extra repayment option and portability as key features.

“You can pay up to 10% of your outstanding mortgage balance in every year of your fixed-rate term, without early repayment charges,” she said. “Crucially, if you stay with Finance Ireland and you move house, you can transfer the rate on your current mortgage to your new home without incurring a penalty.

“They have also included a maximum early repayment charge which caps exposure to potential large break penalties.” Joey Sheahan, Head of Credit, MyMortgages.ie described the options as a ‘big day for the Irish mortgage market’.

“This news from Finance Ireland is really likely to shake things up – both in terms of how mortgage holders approach their choice of term and rates, and in the fact that if the demand for these products are strong, other lenders will make moves to bring similar offerings on stream – if they are not already in the process of doing so,” he said.

The Finance Ireland news was followed by an announcement from Avant Money, which launched Ireland’s lowest four and ten-year fixed rate mortgages and reduced rates on its existing seven-year fixed rate product. The new ten-year fixed rates will start from 2.1%, with four-year fixed rates starting from 1.95%. These rate reductions from Avant, which has caused a major stir since entering the Irish market last year, have been described by the Association of Irish Mortgage Advisors as ‘very good news for mortgage customers’.

These announcements won’t solve the massive issues of cost and supply in the Irish housing market but it does mean more choice available to those in a position to take out a mortgage.

Source: https://www.irishexaminer.com/lifestyle/healthandwellbeing/arid-40291547.html

 


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