A relatively new phenomenon in the Republic, living beyond our means has become a normal way of life for too many of us. Laura Slattery reports
A steady stream of statistics from the Central Bank confirms that Irish people are becoming increasingly indebted, racing to add unsecured debts like car loans and credit card bills to mortgages that are larger on average and being repaid over longer terms than ever before.
A report published by the Central Bank at the beginning of this month says the ratio of household credit to disposable income is estimated to increase from approximately 112 per cent of disposable income at the end of 2004 to 133 per cent at the end of 2005.
This means that for every €1 of disposable income, the average Irish person will owe €1.33.
A recent report by Goodbody Stockbrokers predicted that Irish people would be even more in hock over the next three years, owing €1.60 for every €1 of disposable income.
This surge in debt is a relatively new phenomenon in the Republic. Ten years ago, before economic boom transformed consumers' spending power and aspirations, Irish people owed just 48 cents for every €1 of after-tax income.
Last year was the first time in which they collectively owed more than they were able to pay back out of their disposable income. They were also much less likely than their UK counterparts to have unsecured debts.
Most of consumers' debt is housing debt and is thus being repaid at home loan interest rates, which are lower than the interest rates charged on short-term personal loans. In turn, personal loans tend to have lower rates than credit cards, which are designed for very short-term borrowing only.
But if residential mortgage borrowing continues to grow at its current average rate of more than 25 per cent per annum, the value of outstanding mortgages in Ireland will double in three years, the Central Bank warns, and this could have implications for the economy as a whole as well as individual borrowers.
The bank is concerned that borrowers could find themselves struggling to repay their loans should interest rates rise.
Economists are predicting that the European Central Bank will raise its base interest rate by a quarter of a percentage point in the new year, with a further quarter point increase possible during the summer.
On a €300,000 mortgage being repaid over 35 years at a current rate of 3.1 per cent, this would lead to an €86 rise in monthly repayments, presuming their lender passes on the rate increase.
The Central Bank fears this could lead to financial hardship for a minority of borrowers, especially if interest rate hikes coincide with a cash-depriving change in their circumstances such as redundancy, illness or the birth of a baby.
Research published last summer by the IIB Bank and the Economic Social Research Institute suggested that one in five people find their unsecured debt a heavy burden, with 15 per cent describing their mortgage as such.
Those who said they were struggling were most likely to be earning incomes of €20,000-25,000 and in their 40s.