When the numbers don't add up

The caseload of the Money and Budgeting Services has more than doubled in the past three years, with foreign property investments gone awry and huge credit card debts among the most common complaints, writes ROSITA BOLAND

IT’S COMMON that when people initially call one of the country’s 53 Money and Budgeting Services offices (Mabs), they say they’re phoning on behalf of a relative or friend. “But it’s really for themselves,” says Ruth Killeen, a money adviser at the Mabs office in Dundrum, Dublin 14, where six people are employed.

Mabs is a free, nationwide service established in 1992 to assist people on low incomes to manage their finances – specifically their debts. Traditionally, the majority of its client base has been social-welfare recipients. At present, the national active caseload is 30,160, a figure that has more than doubled from three years ago, when it was 14,707. One of the most striking changes in the profile of people using the services during that period has been the number of clients with mortgages – an increase from 22 per cent in 2006 to 36 per cent for the end of 2009.

The Irish Times spent a day at the Dundrum Mabs office, hearing stories that are similar to those being heard in offices all around the country. To respect client confidentiality, I do not personally meet anyone who visits the office, but I do hear the outline of their stories from the advisers.

“Credit card debt was always there, from the start-up of Mabs offices in 1992, but it’s nothing like what people have now,” Killeen notes. “The people I’ve seen this year have been living on credit. People spent everything. There were no savings. Credit card debt is phenomenal. People took on three or four cards. It’s an illusion of wealth. The most extreme example of credit card debt I’ve seen was one person who bought a new car on a credit card.”

GERRY DOWLING is the manager at Dundrum, and he relates the two most common stories he has been hearing in recent months. Both concern property debt. One pattern is that he is seeing couples come into the office who previously both had high-paying jobs and bought their homes during the peak of the property market. Now either one partner has lost their job, or both are on significant pay cuts, and cannot meet their previously affordable mortgage.

“Two to three years ago, these would have been people with a good standard of living, and they had money to invest. They would not have been Mabs clients,” Dowling says. “These include people who still have what would be considered a very high income – €90,000 or more. We’ve seen some people paying up to €4,000 a month on interest-only mortgages.”

According to Dowling, more common even than this pattern is that of the client who had bought one or two – but sometimes as many as five – apartments as a pension investment, almost always on loans secured against their family home. “They tell us their apartments are now in negative equity. Clients have either had to drop the rent for tenants, or they’ve lost their tenants altogether. They can’t make their payments, and now they’re worried about their family home. We get a lot of self-employed people, in particular, who went down that investment route.”

There is a large noticeboard in the lobby of the Dundrum Mabs office, and what’s immediately striking about it are the number of flyers and posters advertising support services for people with depression. “We try and take a holistic view of our clients’s needs,” Dowling says. Many people who come to see Mabs who are in relationships often have not told their partner they are in financial trouble. The office has seen several members of the same family, none of whom are aware the others are also seeking advice from Mabs.

“Many of the people who come to see us are under extreme stress, especially when they come for a first appointment,” says Dowling. “A person who isn’t well isn’t going to be able to work, so there is a point where we need to close the file on the money bit and direct them towards support. We give them the information to help them take steps towards support services. We have to do a lot of listening – that’s part of the job.”

A client Dowling saw that morning was a self-employed taxi driver, who had bought two apartments in the southeast three years ago, using his own home as security on the loan. “He did have them rented out, for €660 a month. Now one is vacant, and he’s had to drop the rent on the other to €560. They are both in negative equity, and he can’t afford the repayments. He sees himself sinking into a big hole. All we can do is advise him to prepare income and expenditure statements, and to try and negotiate with his lender about the terms of the payments.”

“We always advise people when handling their debt that housing is their top priority,” Máiread McHugh, the Dundrum office administrator, says. “We advise them to keep paying something, even if it is a small amount.”

“The danger is when you start slipping behind in mortgage repayments, because they add up so quickly,” Dowling says.

IF THE TAXI DRIVER continues to be unable to make his repayments in the long term, Dowling sees that one of two things could happen. “He could sell them at a loss, or let the lender repossess them. There will be shortfalls of payments either way. Or the lender could get a judgment for possession of the family home. He can negotiate with the lender to accept reduced payments for the next couple of years. Ultimately, he’ll have to pay it all off. I have seen clients this last year who are looking at being in debt for the rest of their lives. Some of them will be handing on debt to the next generation. It’s the pattern we’re seeing all the time now, and it’s all property-related.”

Just before Christmas, the Financial Regulator released figures that revealed 26,000 households were in mortgage arrears for at least three months, with 18,000 of that number in arrears for more than six months. The stories being heard on a daily basis at the Dundrum Mabs office suggests that we can expect that figure to rise dramatically this year.

One of the most common forms of debt Mabs clients consistently have problems with are utility bills. Dowling points out that, for people who are unemployed, bills tend to be on the high side in winter in general, due to the fact that they are at home more, and thus use more heating and electricity. Since the weather from the last week of December and through the first weeks of January was so unusually cold, with many days and nights of sub-zero temperatures, Dowling predicts that Mabs clients will be facing even higher bills at the end of this month.

“We haven’t had an influx of extra new clients since after Christmas, but we put that down to the cold weather, and the fact that schools were off,” Dowling says. “Parents were not available to come for meetings when their children were at home, but by the end of this month, we anticipate seeing the effects of credit card debt after Christmas kick in, as well as high utility bills, and the reduction in public sector pay.”

Mabs stats for 2009

19,094

The number of new clients attending Mabs offices nationwide.

10,347

Clients aged between 26 and 40 (the age group with the biggest growth of new clients)

4,385

Clients who are married with children (the biggest growth sector by client status)

4,107

Clients who are single (the second biggest growth sector by client status)

Active debt types by prevalence

1 Personal loans with financial institutions

2 Utility bills

3 Credit card loans

4 Mortgages

5 Hire purchase loans

6 Money lenders

7 Overdrafts

8 Outstanding rent