Mortgage, credit card, personal loan, credit union - borrowing is easy. But many people are sinking under the weight of repayments, writes Róisín Ingle
John wasn't hopeful when he went looking for a mortgage to buy his first home. On a State-run back-to-work scheme, with an income of €27,000, he contacted a broker who a few weeks later gave him some unexpected news - despite his uncertain financial situation he was to be given mortgage approval for a loan of €189,500.
His joy at being a homeowner was shortlived. Two years on, John is struggling to make the repayments on his house and has joined the growing number of Irish consumers trying to keep afloat in a sea of unmanageable debt.
John's story is not typical but it is indicative of the problems associated with figures released yesterday, showing a 25 per cent mortgage lending increase in September compared with the same month last year. This steep increase was fuelled by a number of factors, including high-cost housing, low unemployment and low interest rates.
Meanwhile, credit card debt has soared to record levels. Like mortgage lending, it has nearly doubled in the last four years, with the financial advice sector reporting an increase in the number of people trying to cope with serious debt problems.
People like Moira, a mother of two from Wexford town, who until the limit on her credit card was increased, was always extremely careful with money. Six years ago, when she first got her credit card, there was a £500 limit. Terrified of debt, the part-time cleaner only used the card for emergencies, paying off the bill every month without fail. She was so conscientious that the company rewarded her by increasing her limit.
"By raising the limit they were telling me I could manage it, so you tell yourself you can," she says.
But Moira couldn't manage. Her husband lost his job and she began paying the minimum monthly payment instead of the full amount. Three years later she was hiding from the postman, telling her children not to answer the phone and buckling under the pressure of a €6,750 credit card debt.
Moira went to the Arklow and District branch of the State-run Money and Budgetary Service (MABS) and, over time, it helped her secure a credit union loan, which she is still paying off, to clear the debt. Moira's troubles are not unusual and these days most of us know people who have fallen out with their all-too-flexible friends.
Four years ago, there were one and a half million credit cards in circulation; by June this year that figure had increased by more than one million and the debt on them had reached a budget-busting €1.5 billion.
Meanwhile, the rate of growth in the mortgage sector has led to the Irish Financial Services Regulatory Authority (IFSRA), established last May, to study lending practices here. As part of its remit, the body has been digging around in the files of financial institutions. Yesterday it called on institutions to tighten up assessment of borrowers.
Mary O'Dea, consumer director of IFSRA, stresses that consumers, in turn, must be clear about the way in which banks make their vital mortgage-approval decisions.
"We would be very keen to impress upon the consumer the importance of being aware of the assumptions being made by lending institutions about their financial situation based on the information they give," she says. "We would urge consumers to ensure they are providing an accurate picture of their finances and also that they look ahead to see how changing circumstances in the future - childcare costs, for example - might affect their ability to meet payments. It is a long-term debt and needs to be looked at in that way."
Helen Brady, of Arklow MABS, which is currently helping John find a solution to his mortgage repayment problems, says more people than ever are being given mortgages that are "way beyond their means". Typical clients would be a couple who have sold their house in Dublin to buy in south Co Wicklow without being fully aware that their plans to commute to work in Dublin are not financially feasible.
"What has happened in some cases is that the spouse working in Dublin decides they can't hack the commuting after all, it's making them less productive in work or their overtime is cut, so they seek employment closer to home," says Brady. "It becomes increasingly difficult to meet the payments on the extra car loan, say, or the insurance and general running costs. Reality sets in; they remortgage, consolidating their other loans in the mortgage, and are then faced with spiralling monthly payments. It's a vicious circle and it's becoming increasingly common in this area."
According to Brady, banks and brokers need to liaise more closely with social welfare agencies and tax officials to establish the truth about a person's financial standing.
"People are being given mortgages they can't afford to pay and then hitting a brick wall six months later," she says.
As we put out the Hallowe'en bonfires, the even scarier prospect looms of a national credit splurge in the run up to Christmas, but Felix O'Regan of the Irish Bankers Federation says the dramatic increase in the number of credit card holders doesn't mean an increase in personal debt.
"When you take the total number of transactions and divide it by the numbers of cards, you see that the level of credit used has not necessarily increased," he says. He adds that more than half of users pay their bills every month, incurring no interest.
Asked whether institutions are thorough enough in checking that customers are going to be able to pay back a mortgage, O'Regan says it is not in their interest to give approval to people who can't meet payments.
"The bottom line is that the lenders are unashamedly trying to make a profit and they are not going to lend any funds without being very, very satisfied that the person has the capacity to pay," he says.
As "money doctor" on Newstalk 106, John Lowe, of Providence Financial Services, has noticed an increase in the number of queries relating to credit card debt and mortgage repayments. Last week a young woman had a query about how to "quickly reduce" a €9,000 bill she had built up after using her credit card to make up the shortfall on a deposit on a new house.
While urging people not to use credit cards for medium- or even short-term loans, he says the credit card companies themselves are partly to blame for the problem.
"You get your credit card balance of €2,500, are fairly careful with it and never late for a payment. A year later they write to you again to increase it to €5,000. The holder then goes off and thinks it's fine to have a little holiday, but they are paying 18 per cent interest and they don't pay it off immediately. That's how things spiral," he says.
Companies such as DebtIreland.com, run by William Jones, a former debt recovery agent from the UK, have been set up in response to the mounting personal debt in this country. The company charges a one-off fee - €100 for three or less debts, up to €200 for seven or more debts - as opposed to a monthly charge (the kind of fee associated with unscrupulous "debt consolidation" companies) for its service. Jones claims to have helped hundreds of people with their debts in the last 12 months, by personally taking over the debt negotiations with the companies involved. Jones blames "reckless lending" as opposed to reckless spending for many of the nightmarish stories he hears.
"A typical scenario is a case I have in front of me now where a man has two credit cards with €3,500 outstanding on each one," he says. "He has a personal loan for €4,000, a credit union loan of €9,000 and an overdraft of €2,000. He lost his well-paid job, had a hard time getting another one and then his wife had a baby and gave up her job and his situation just became impossible."
Jones maintains that the onus is on lenders to establish whether a borrower is able to service the payments. "This man was offered more credit, for example, despite having multiple debts," he says.
On the mortgage front, experts say a balance needs to be struck so that borrowers don't find themselves in a dangerous situation in the future.
"It's a dilemma," says one banking industry insider, who didn't wish to be named. "On the one hand, we should be sitting on the banks and making sure they don't lend too much money to people who can't afford it; on the other hand, we don't want to be creating a situation in society where there is a policy that prevents young people from buying homes, where rules are so strict that only the very wealthy can get on the property ladder."
Dermot Jewell, chief executive of the Consumers' Association of Ireland, says debt is now an accepted part of Irish life.
"You can have a good job and still have trouble meeting the bills, where that would not have been the case in the past," he says. "What we need to do more than ever is educate people to deal with it. We need to advise young people on the importance of trying to save and know how to manage your income and be aware of its limitations.
"It's a growing problem, especially with the range of credit available now . . . but banks exist for one reason and one reason only: to make money for themselves. Sometimes consumers forget that."
Moira certainly hasn't. "Despite everything, my husband keeps getting letters from credit card companies offering him all these deals, but these days they go straight in the bin and that's where I think all credit cards should be," she says.
Names have been changed to protect the identity of the people in debt
Name and shame: seven steps to Stubbs
• You use a credit card to buy day-to-day necessities such as food and petrol
• You pay only the minimum payment on your credit card balance, or you're behind in your repayments
• You frequently receive late notices and are in arrears with your bills
• You're at or over the limit on your credit cards, overdraft
• You cringe when the phone rings or the post arrives.
• You do not know how much you owe or what you spend on interest
• Your name appears in Stubbs Gazette after you are brought to court
Stubbs Gazette is widely read by bank managers, credit controllers and finance houses. An appearance in it is a kiss of death to anyone in financial trouble
