Heavy burden: working full time but still in arrears
The vast majority of people in mortgage arrears in Ireland can’t make ends meet despite having full-time jobs. But why?
Illustration: Linda Braucht
A couple of weeks back a Central Bank analyst called Yvonne McCarthy published an illuminating piece of research that revealed that the vast majority of people in mortgage arrears in Ireland can’t make ends meets despite going to work every day.
The research exposed the myth that unemployment and negative equity are the sole drivers of a mortgage crisis that has left more than 100,000 in arrears. It painted a picture of many thousands of people who work long hours but still don’t make enough to cover the cost of home loans taken out at the height of the boom.
“While a significant portion of borrowers in arrears are still in employment, many of them have experienced a deterioration in affordability,” McCarthy said. “The results show that the current mortgage crisis, and efforts to prevent a further deterioration, requires more than simply targeting overall unemployment or negative equity. Rather, such efforts should also aim to strengthen labour market conditions and job security as well as targeting long-term unemployment.”
So if unemployment is not to blame for this ongoing crisis, what is? It is easy to point the finger at reckless borrowers or reckless lenders, but, when you look at the numbers, it seems clear that this Government and the previous one shoulder the biggest portion of blame for widespread “deterioration in affordability”.
The pain started in October 2008. After that first slash-and-burn budget, a public-sector worker earning a gross salary of €30,000 saw her take-home pay fall by €133 a month – or almost €1,600 a year – through a combination of increased taxes and pension levies. The take-home pay of a colleague on €70,000 fell by €316 a month, or €3,792 a year. A private-sector worker with a salary of €50,000 saw his pay fall by €132 each month, while those in the private-sector on salaries of €90,000 saw their monthly net pay fall by €270.
But things were only just starting. The supplementary budget of April 2009 cut pay further, leaving the public-sector worker on €30,000, with €175 less to spend each month than they had 12 months earlier, while their better-paid colleague was down €500 a month – 12 per cent of their income. The private-sector worker on €50,000 was worse off by €251 a month, while the one on €90,000 was worse off by €550 each month once all taxes, levies and PRSI were paid.
So within six months, two savage budgets had cut the pay of a public sector worker on €30,000 by €2,100 while their colleague on €70,000 had seen their annual take-home pay fall €6,000 – or over five monthly mortgage payments on an average sized tracker.
The end of 2009
Those in the public sector were
hit again at the end of 2009, when then minister for finance Brian Lenihan imposed a 5 per cent cut on the first €30,000 of their salaries and 7.5 per cent on the next €40,000. At a stroke, this left the lower-paid public-sector worker worse off by another €125 a month, while the higher-paid one was down a further €375.
Then children’s allowance was cut by €16 per child per month in a move that took €384 from the annual income of a two-adult, two-child household. All told, then, the public sector worker who had bought a house at the height of the boom while on a salary of €70,000 a year was earning just shy of €11,000 less each than they were. That is almost an entire year’s mortgage payments.