Debt relief in the current crisis has to go beyond mortgages, to those struggling to cover the basics, writes the author of a recent report on household debt in Ireland.
Ireland’s debt problem is likely to worsen with the Covid-19 pandemic.
Already, living with debt is a daily reality for more than half of all households in Ireland, according to the Household Finance and Consumption Survey (HFCS) results published in February 2020.
Currently, Ireland has the fifth highest rate of personal indebtedness in Europe. And it’s not just mortgages in play here. Nearly a third of all households in Ireland have non-mortgage debt.
Non-mortgage debt means all kinds of other borrowing: it can be assets, such as car loans, or other consumer debt such as credit cards or personal loans. It also takes in money-lender debt or informal lending outside the banking sector. The kinds of debt often brought on by just ordinary living.
Yet, despite these high levels of non-mortgage debt – and the worsening financial instability caused by Covid-19 – the state hasn’t provided targeted supports for these.
Government policy has focused primarily on supporting those with mortgages. Home-owners can apply for a three-month “break” in mortgage repayments and relief for households with bank-offered mortgages is absolutely crucial.
But the supports are limited in scope – and, critically, do not reach out to the many households affected by the crisis who don’t own the roofs over their heads.
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 – renters, lower-paid workers, and those who may not have the middle-class luxury of bringing their work home.
Hundreds of thousands of workers in Ireland have already lost their jobs. A high number of them are likely renters. Threshold, the national housing charity, has been inundated with calls since early March on their helpline from renters unable to pay rent, and fearing the loss of their tenancies post-crisis.
The government has announced that all evictions and rent increases have been put on hold, while, across the city and country, people are losing their jobs, and being forced to self-isolate. That freeze is welcome.
The government has also just shortened the application process for renters who have lost their jobs to apply for rent supplement, a top-up payment for those who can’t cover their full rent. But it hasn’t changed the terms or requirements necessary in order to receive this payment.
As such, these measures do little to alleviate the burden of thousands of people who struggle now with already high rents – and importantly – are also likely to into the future.
Will these households have their tenancies protected in three months’ time? Will they be charged “back rent” if they can’t make payments or access supports? That’s all unclear.
Between 2013 and 2018, non-mortgage debt as a percentage of household borrowing more than doubled from 4.8 percent to 10.1 percent, according to the HFCS. How much people owed grew during this time by 20 percent, as did the percentage of households with this debt.
Falling home-ownership rates and the rise in living costs have both likely played into the trend of more households borrowing to meet everyday expenses.
People are going into debt for basic things, for food or utility bills, recent research by TASC found. The analysis, based on data from the European Union Survey on Income and Living Conditions (EU-SILC), found that nearly 20 percent of renters in the private sector who borrow are struggling to repay their loans consistently when they are due.
Private renters are four times more likely to go without heat than people who own their own homes. And certain households already at risk of financial hardship are more likely to have non-mortgage debt than others.
Single-parent households have the highest levels of non-mortgage debt, at nearly 47 percent, when compared with all other household types.
As people rent for longer, we need to focus more in policy and practice on non-mortgage debt to maintain the stability of the economy.
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.
How the state responds now could have deep ripples into the future. Moneylenders have already started to target households facing arrears and financial hardship as a result of Covid-19, staff at the charity the Society of St Vincent de Paul have said. Rates for borrowers – often low-income households – can hit 125 percent APR.
With hundreds of thousands of workers without work and dealing with a sudden, unexpected drop in income, measures are urgently needed to ensure that people do not need to borrow money to live. And definitely do not borrow from high-cost lenders, sending families into a debt trap with wide-ranging consequences, from difficulty making ends meet to an inability to build up savings.
Instead, in its response to Covid-19, the government should be launching policies rooted in the understanding that a high burden of household debt in Ireland is connected to wider structural cracks – the cost of living and housing, income levels, and financial access.
It is only through this lens that the state can help ensure the well-being of renters and those with non-mortgage debt when things do get back to “normal”.
If, however, the plight of people without mortgage debt continues to be ignored by policymakers, the problems we will face as a society will only become more egregious after Covid-19.
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