Debt problems - Let’s nip this in the bud now

The Money and Budgeting Service (MABS) has experienced a huge upswing in the number of people with mortgages seeking financial advice in the first half of this year.

The service, which has 53 offices and 240 staff nationwide, has seen a change in the profile of the kind of people presenting with debt problems. One in every four new clients now appearing at MABS centres are people with mortgages, up from one in five last year.

The average debt of clients has also been increasing sharply. In 2006 those seeking advice owed an average €6,500 each, but that rose to €7,600 in 2007, an increase of 16.9%.

In 2008 that figure has already increased to €9,600, which amounts to an increase of more than 26% on the 2007 figure. Thus, in the past two years the average debt has almost doubled. This has frightening implications.

In the first five months of 2008, MABS dealt with 6,608 new clients. The majority of clients — 58% — are on social welfare. Previously about half of those people had debts to banks and financial services, but that figure has now jumped to 60%.

Almost a quarter of the people seeking advice are now having problems with mortgages. This compares with a fifth just a year ago. Maybe that does not sound like a very big increase, but it a phenomenal rise in just one year. This could have tremendous knock-on implications in a wide variety of areas.

If banks begin foreclosing on such mortgages and this property comes on the market, prices will almost inevitably fall and this could have a snowballing effect on other property values. Japan went into recession in 1990, property prices did not fall for more than a year, because people held onto their property rather than sell it at a lower price. Then prices tumbled.

People are already being squeezed financially with the result that those in the moderate and low-income brackets will inevitably be hardest hit. About 300,000 people are currently living in consistent poverty, which is an indictment of our society.

People who did not benefit from the Celtic Tiger are now being left even further behind. The Labour party has called for resources to retrain workers, so that they will be able to compete in areas targeted for medium-term expansion in such areas as financial services.

We need to face these problems promptly with both vision and determination.