Profile The Borrowers: It was so simple to borrow the money, but more and more Irish people are finding that their repayments are larger than their incomes. Are belt-tightening times on the way, asks Laura Slattery
An economic boom means there are quite a lot of Joneses around to keep up with, so it's lucky for the Irish borrowers that there seems to be no end to the queue of offers to lend them cash.
Here they are clogging up letter boxes, sandwiched between bills - those leaflets advertising thousands of euro at 0 per cent finance, whatever that means, all of it approved within 0.2 nanoseconds by ringing this lo-call phone number. A new suite, a "home cinema", a power shower that doesn't break - yours in just 12 easy repayments.
Borrowers, after all, are mature adults who know what they're getting themselves into. There's really no call to read the small print, is there?
It doesn't seem that long ago that they settled down and bought their starter homes. Their monthly mortgage repayments are a bit of a drag, but their lenders offered them a "low start" option which helped ease the pressure in the beginning and now they're thinking of taking a payment holiday for a couple of months so they can pay for a round-the-world trip. Best to squeeze one in before the first kid arrives - not that they're going to stop having fun when it does.
Borrowers may have missed out on a promotion at work recently, but all of their colleagues agreed they would have better luck next time. It's not the kind of career they saw themselves in 15 years ago, but it pays the bills. Almost.
Irish borrowers feature in the 36 per cent of the population who have some form of unsecured debt that they will not pay off at the end of the month: a car loan, perhaps, or a stubborn credit-card balance that can't be cleared.
For every €1 of disposable income, Irish people now owe €1.20, according to figures from the Central Bank, while average household debt is growing at an annual rate of 25 per cent.
But while the Central Bank frets about the knock-on effects this could have on the economy should interest rates rise from their current historic lows, the majority of Irish borrowers just don't seem to be bothered. Debt, both small amounts of the unsecured kind and large amounts of the mortgage kind, has simply become an accepted part of their lives.
According to new research by IIB Bank and the Economic Social Research Institute (ESRI), only one in five people find their unsecured debt a heavy burden and only 15 per cent describe their mortgage this way.
The typical Irish borrower is repaying a mortgage at a rate of €595 a month (up from €500 in 2004) and has €5,800 of unsecured debts (up from €5,100 last year). Those who called their mortgage a heavy burden, however, have average repayments of €918.
Large numbers of people describe both types of debt as "something of a burden", but this is to be expected, says Austin Hughes, IIB Bank's chief economist.
"People say childcare is a burden or the golf-club fees are a burden, but they don't quit the golf club and they don't stop having kids," says Hughes.
Their debts may enhance the banks' profits, but it doesn't exactly place them anywhere near the poverty line.
But while more people are relaxed about their borrowings than ever before, the IIB Bank /ESRI survey paints a somewhat depressing picture of the minority who say they are struggling. These people are most likely to be earning modest incomes of €20,000-€25,000, although there is no "Joe Average", according to Hughes - we're all at it.
The heavily burdened are also most likely to be in their 40s, a time when outgoings such as the "second mortgage" of creche fees have increased, but incomes have not.
"Incomes have not risen as much as they were hoping, and that can have a very negative effect, particularly when they see various high-profile increases in local authority costs and education charges," says Hughes.
It's not so much a case of easy come, easy go, as just easy go.
THIS PICTURE POINTS to belt-tightening times to come for blasé borrowers in their 30s with a new mortgage and new family members on the way and no extra income to compensate. Although Hughes says there is little to indicate a champagne lifestyle, it is clear that post-boom standards of living, not just the cost of basic living in "rip-off Ireland", are fuelling the credit habits of consumers.
"If I look at my credit card statement, it's Brown Thomas, Brown Thomas, restaurant bill . . . Only maybe one of the items is for what I would call a genuine transaction for which I need a Visa card, such as car tax or a plane flight," says Ruth Whelan, a 31-year-old designer living in Dublin.
Whelan is one of almost 50 per cent of Irish people who don't clear their credit-card balance every month. She does, however, keep her balance at around €1,000 and always pays off at least the minimum, thereby avoiding late-payment fees.
"I might get it down to €800, but in my head I would think, well now, I've got credit of €200," she says. She minds paying the interest, but tries not to think about it too much.
A few years ago, Whelan sensibly took out a loan to clear a €2,000 credit-card balance, saving on interest charges. It was one of the most common bugbears of Irish consumers, the payment of an annual motor insurance premium, that brought her average balance back up to a stable €1,000.
"Today, with the cost of living in Dublin, it is really hard to save," she says. "I think my generation will go to beauticians and restaurants and then say we're broke, whereas my parents' generation maybe wouldn't have gone."
Whelan is confident about employment prospects and the general state of the economy, but worries about house prices. She missed the boat on Special Savings Incentive Accounts (SSIAs) because she was overseas, but hopes to buy property before thousands of investors and first-time buyers with SSIA lump sums start crowding the market next year.
WHELAN HAS ALREADY set up a meeting with First Active, the lender that this week launched a 100 per cent, no-deposit-necessary mortgage, so she can use what savings she does have for solicitors' fees and furniture.
For anyone pouring money into their landlords' accounts on a monthly basis, nothing will seem more sensible than getting on the property ladder, and high amounts of debt are simply part of the deal, as they always have been.
But with interest rates so low and the growth in house prices slowing down, some commentators believe that the new generation of buyers have been lulled into a false sense of security, never contemplating such horrors as freedom-sapping negative equity (whereby they owe more than the market value of their homes) or the now extremely rare last resort of repossession.
"There's a mindset among Irish people that there is no end to the good times out there, and to be fair to the people who started working 10 years ago, they have lived through the good times," says mortgage broker Michael Dowling. "They don't remember when interest rates were 18 per cent."
The Money Advice and Budgeting Service, which helps people on low incomes with serious debt problems, says the numbers knocking on its doors are growing.
"A lot of people who are in debt nowadays are people who are well-educated," says national development officer John Lawless. It's a myth, he adds, that spiralling, out-of-control debt is the result of irresponsibility.
"Sometimes it's a change in circumstances [such as bereavement, separation, ill-health or redundancy], sometimes it's just that their low incomes can't meet the cost of living, sometimes it can be sheer bad luck," he says. "There might be one wage-earner in the family, and if that wage is pulled, suddenly they have trouble servicing their credit agreements. Then they panic."