Personal Financial Realities

As we continue with our BKK practical help series all this week, our third instalment focuses on some personal financial realities and questions we think all households should be asking themselves.  The extent of the economic fallout was underscored by the fact that 283,000 people had applied for Covid-19 emergency income payments by the end of last week and more than 16,000 companies had applied for a wage subsidy scheme.  Ireland’s five retail banks are introducing measures to help personal as well as business customers whose personal and business circumstances have been impacted.  We understand that dealing with the banks can be daunting and we are happy to work with you on your options.

Mortgages

• Most banks are offering up to a three month mortgage payment holiday with approximately 30,000 already agreed
• But what does this mean for the mortgage holder and what are the options?
• MABS are advising that “This is not free money and will have to be paid back,”.  “If your mortgage is €1,000 a month and you don’t pay anything for three months, by month four you will be €3,000 in arrears. The bank might suggest charging you an extra €100 a month for 30 months on top of your usual €1,000 payment.”
• For those with tight cash flow, that extra €100 will be significant, with the burden running for 2½ years
• This will also mean more interest in the long term
  • Take a borrower with €350,000 outstanding on their mortgage on a 3.15% variable rate with 32 years remaining
  • Repayments are €1,447.83 monthly
  • If you take a 3 month payment holiday you will pay an extra €2,651 in interest on the three months of deferred payments of €4,546 over the remaining 31 years 9 months
• In all cases there is nothing ‘free’ going on. It is simply a deferral of 3 months that can either be added onto the term of the mortgage (interest accumulating throughout the term) or spread the 3 months over the remaining unexpired term (less interest accumulating).
• Where possible, the smart thing to do here is accumulate the 3 months payments within year 1 and physically do a capital reduction thereby ‘catching up the 3 months’, that avoids the accumulating of interest over the remaining unexpired term.
• The application process is relatively straightforward, essentially it is a phone call or online contact but you will need to prove (employer confirmation) that you have been laid off/had income reduction and complete a one page application type form
• Stop paying in and start taking money out; if you have savings consider using this to pay your mortgage rather than taking a payment holiday
• The above also goes for buy to let loans but the proof required is confirmation from the tenant or management company that they are not in a position to pay the rent, whether or not you have a buy to let mortgage
• It is very important to keep your life assurance payments associated with your mortgage up to date
• The main question we are getting is “will the impact of a payment break impact on my credit record” and the message from the Central Bank is that it will not adversely affect it

Rent

• The government has introduced legislation to prevent both the termination of residential tenancies and any rent increases for the during of this crisis
• While tenants are expected to pay rent, income supports and rent supplement are also available to those struggling to pay
• While the rent supplement is means tested the DEASP has indicated flexibility
• Any arrears in rent will still be payable but landlords have been asked to show understanding and reach local arrangements in these circumstances

Utility Bills

• If you think you may struggle with a forthcoming bill, call your provider immediately, says the Commission for the Regulation of Utilities
• “Suppliers must arrange practical payment plans to assist domestic customers who have built up arrears. Any repayment arrangements must take into account the customer’s circumstances and must be reasonable and affordable,” the regulator says
• There is a moratorium on all disconnections until April 19^th, at least
• Emergency credit has also been announced for those with Pay As You Go gas meters, increasing from €10 to €100 during this period
• Pay as you go electricity customers are being offered €10 emergency credit, which will need to be paid back

Health insurance comparison

• If your renewal is due and you would normally pay by lump sum, you could consider switching to a monthly payment to spread the upfront cost
• The Health Insurance Authority is currently meeting the Department of Health and insurers to thrash out how to help policyholders who cannot pay at this time
• It is believed that answers in the days to come may include deferred payments, payment breaks, downgrading policy cover options with waived waiting periods should you upgrade in future
• The Health Insurance Authority have an online comparison tool at hia.ie to compare cheaper alternatives
• It is worth, at the very least, getting in touch with your provider and having a conversation

PCP Car Finance

• Those with car financing through a PCP should note that vehicles can be taken if payments are missed
• Contact the PCP supplier and speak with them about what capacity you have to repay at present.  They may offer a reduced payment

Household budgets

• Look at your full financial situation.  If you have been impacted by a drop in income, we would recommend you prepare a household budget taking into account what will now be coming in and looking to reduce all monthly outgoings
• Focus on priority living costs- you should prioritise spending on food, medical care and utilities with the aim of prioritising your health and wellbeing
• Examine all your direct debits, what is essential?
• While it is impossible to spend money during this period of isolation it is important to make a listing of all outgoings which may include; make a listing of all your current debts, which may include mortgage, credit card, overdrafts, loans and hire purchase payments, utility bills, telephone and internet, payments to revenue, childcare fees, school costs, children’s activities, motor, fuel, holidays, eating and drinking out, coffees, clothes, haircuts etc.
• Look at television/Netflix/Disney/Eir/Sky packages
• Reducing outgoings and using savings is preferred, rather than extending yourself with an overdraft or credit card
• Anyone putting money in a children’s education fund who anticipates cash flow problems could consider a contribution holiday

Banks set out joint plan to support personal and businesses customers impacted

• Ireland’s five retail banks AIB, Bank of Ireland, KBC, Permanent tsb and Ulster Bank are introducing measures to help businesses and personal customers whose personal and business circumstances have been impacted
• The banks are also working collaboratively to ensure provision of branch and payment services during this challenging period
• Implementing the following measures:
  • payment break up to three months for business and personal customers affected by Covid-19
  • to be followed by ongoing reviews depending on the scale and extent of the situation
  • working together to achieve a simplified application process to receive support from banks
• Ensuring that any Covid-19 applications for a payment break and further reviews will not adversely impact credit ratings (and are meeting with the Central Bank of Ireland to urgently achieve a solution in this regard)
• Banks will also defer court proceedings for three months
• The banking system stands ready to provide working capital support for businesses
• Both the Credit Servicing Firms and non-bank lenders are committed to working with the Government and industry to provide the flexibility that people need right now
• These banks agree that “priority must be given to ways in which their collective action can support individual customers, families, businesses and communities across the economy during this time and have committed to playing their part”

Home Working

• As a result of COVID-19, a large number of employees are working from home
• Revenue provide tax relief for “e-workers”
• A BIK will not arise where employers provide equipment such as laptops, printers, scanners and office furniture in order for employees to set up a working space in their homes
• In situations where the Government recommends that employers allow employees to work from home to support national public health objectives, as in the case of COVID-19, the employer may pay the employee up to €3.20 per day to cover the additional costs of working from home. If the employer does not make this payment, the employee may be entitled to make a claim on their personal tax return in respect for expenses incurred wholly, exclusively and necessarily in the performance of the duties of the employment. These vouched expenses may include an apportionment of heating and electricity bills

Benefit in Kind Employer Provided Vehicles

• During the period of the COVID-19 restrictions, where an employee is in receipt of a vehicle (car or van) provided by his or her employer, the following may apply:

• Employer Takes Back Possession of the Vehicle

Where an employer takes back possession of the vehicle and an employee has no access to the vehicle, no BIK shall apply for the period

• • Employer Prohibits Use

Where an employee retains possession of a vehicle, but the employer prohibits the use of the vehicle, no BIK shall apply if the vehicle is not used for private use

Records should be maintained to show that the employer has prohibited its use and no such use has occurred, for example communication from employer, photographic evidence of odometer etc.

• • Employer Allows Private Use

Where an employee has a car provided by his or her employer and the circumstances in the previous example do not apply

limited or reduced business mileage (if any) is undertaken during the period of the COVID-19 crisis, and personal use is limited

the amount of business mileage travelled in January 2020 may be used as a base month for the purposes of calculating the amount of BIK due

Thus, the percentage applied in the calculation of the cash equivalent, which is based on annualised business mileage, may have regard to the actual business mileage for January 2020, for the period of the COVID-19 restrictions. Appropriate records should be kept, for example business mileage travelled in January, amount of private use, photographic evidence of odometer etc.

• • Employee Continues Working

Where an employee continues to undertake business travel as usual in an employer-provided vehicle, the usual BIK rules will apply.

 

We are here to help and really want to engage with and help you at this time.  Please continue to speak with us.