Non-mortgage debt and financial wellbeing of Irish households

Ireland has the fifth highest rate of personal indebtedness in Europe, and living with debt is a daily reality for over half of all Irish households. According to the recently published Household Finance and Consumption Survey (HFCS), nearly a third of all Irish households (30.5%) have non-mortgage debt.

This debt comprises all non-mortgage types of borrowing and can include assets (such as car loans) as well as other forms of consumer debt (such as credit cards, personal loans as well as moneylender debt or informal lending outside the banking sector). Certain households are more likely to have non-mortgage debt than others. For example, single-parent households have the highest participation rates in non-mortgage debt (at nearly 47%) when compared with all other household types.

Despite the high levels of Irish households with consumer (excluding mortgage) debt burdens, targeted support in response to the growing financial instability caused by the COVID-19 pandemic have not provided relief in relation to these types of debts. Thus far, government policy has pertained largely to supporting those with mortgages, who can now apply for a three month “break” in mortgage repayments. The caveat here is that this break is only for mortgages with traditional financial lenders and excludes mortgages with non-bank creditors such as vulture funds. For many, interest will also continue to accrue during this period and will be added to the total amount owed and serviced at a later time.

While relief for households with bank-offered mortgages is absolutely critical, these supports are limited in scope and are not inclusive to many households affected by the crisis. Relief and intervention for those facing financial difficulty and trying to service non-mortgage debt (in particular renters) should also be a policy concern.   

Non-mortgage debt is becoming increasingly important in Ireland

According to the HFCS, from 2013 – 2018 non-mortgage debt as a percentage of total household borrowing more than doubled, increasing from 4.8% to 10.1%. The median amount of this debt also rose during this time (by 20%) as did the overall percentage of households with non-mortgage debt (by just over 3%).

As such, non-mortgage debt is becoming increasingly important in Ireland for a combination of reasons. First, the rates of home ownership have fallen, with the average age of first-time buyers increasing from 28 years in 2011 to 35 in 2016 (according to 2016 Census data). Second, the rising cost of living (in particular in relation to renting and utility costs) has potentially resulted in many households borrowing in order to meet everyday expenses.

If the trends in tenure status continue, Ireland is unlikely to return to the high levels of home ownership of the 2000s. As we become a country of people who rent for longer periods of their lives, we need to focus increasingly on non-mortgage debt in order to maintain stability. In general, public discourse about household debt in Ireland tends to fixate narrowly on mortgages. This needs to be expanded to include more regularly collected and publicly accessible data on types of non-mortgage debt so as to see the whole picture and the ways debt impacts people’s lives and financial health.

This is true now during the COVID-19 crisis and will remain necessary after the crisis passes.   

Renters, unmanageable debt levels and job loss

Those most exposed to the impacts of Covid-19 are likely to be those who are feeling the greatest economic brunt of the pandemic already, such as renters, lower-paid workers, and those who may not have the middle-class luxury of bringing their work home.

The March 2020 report published by TASC (Think Tank for Action on Social Change) revealed that nearly 20% of renters in the private sector who borrow are struggling to repay their loans consistently as they fall due. This highlights the levels of financial difficulty faced by this group, in particular those in urban and commuter areas who face exorbitant renting costs. For example, the average rent in Dublin is now €1,700/month and rents are more than €1,000/month in Co Galway, Co Kildare, Co Louth, Co Meath and Co Wicklow.

An estimated 500,000 Irish workers have lost their jobs because of Covid-19.  A high number of them are renters. Granted, the Government has announced that all evictions and rent increases have been put on hold due to the COVID-19 pandemic, which is welcome. Further to this, the Government made it easier for renters who have lost their jobs to apply for the current Rent Supplement scheme. However, these measures are restrictive (for example, in order to apply rent support for the first time you need to have been living in the property for at least 6 months, which is not the case for many renters) and do little to alleviate the burden of thousands of people who face high renting costs now – and more importantly – are likely to into the future, in particular those in the private sector whose fate is in the hands of individual landlords.

There is no clarity concerning whether or not these households, although they will not be evicted for the time being, will have their tenancies protected in three months’ time and not charged “back rent” if unable to make payments or receive rent support. Also, the choice to announce a streamlined rent support application process less than 48 hours before most rents are due (the first of the month) and weeks after other COVID-19 housing policies demonstrates how renters remain an afterthought in the minds of many policy makers.

Policies needed to avoid exacerbating debt burdens for all Irish households

Recently St Vincent de Paul reported that moneylenders have already begun targeting households who may face arrears and financial hardship as a result of COVID-19. Over 300,000 Irish households borrowed from moneylenders last year and the average APR for moneylending loans is 125%. For many households, in particular low-income households, these high cost loans are their primary source for credit.

With hundreds of thousands of workers facing job loss and a sudden, unexpected drop in income, measures are urgently needed to ensure that people do not need to borrow money in order to live, in particular from high cost lenders, which could result in a “debt trap” with wide-ranging consequences for families and communities.

New policies must integrate an understanding of household debt in Ireland as connected to wider structural concerns, such as the cost of living and housing, income levels and financial access. Such thinking is vital in order to ensure the wellbeing of renters and those with non-mortgage debt are sufficiently included in current and future policy interventions.  

- A version of this article appeared in the Dublin Iquirer on 8 April, 2020. 

Posted in: Banking and finance • Economics • Housing • Inequality

Tagged with: coronavirus • debt