Celtic Tiger II? What 2018 may mean for your finances

It’s been a year of highs – US markets reached new peaks, while rents exceeded Celtic Tiger levels. And lows, as evidenced by the ongoing tracker mortgage scandal.

With just two weeks to go in 2017, we asked some personal finance experts for their thoughts on the year just gone – and what 2018 might hold.

“A lot done but more to do” – Padraic Kissane, independent financial adviser

In looking back to review the year of 2017 I am left with a sense of despair and frustration. Many families must go through another Christmas being overcharged enormous amounts of money each month and this has been ongoing for some since 2009. That is a disgrace.

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I would like to acknowledge the remarkable contributions made by Niamh Byrne, Hazel Melbourne, Helen Grogan and Thomas Ryan in their presentations to the [Oireachtas] Finance Committee in November, but especially for coming forward and telling their stories for the betterment of all affected by this scandal. Their bravery in setting aside their anonymity is to be applauded and recognised. Regretfully, I must add that Helen, Hazel, Niamh or Thomas have to date not had any of their accounts corrected properly and their fight continues. This tells you about the real culture within banks.

Having to face into 2018 with so many issues not yet addressed or resolved across all lenders is going to be a continuing challenge, especially facing down their resistance to positions that are customer focused rather than profit focused.

My wishes for 2018 are:

– Banks begin to respect their customers.

– Banks adopt a culture of customers first, profit second.

– That the other affected cohorts are resolved fully as early as possible in 2018. The pain has gone on for long enough

– That the report from the Central Bank on the tracker scandal will be published.

– That the stories I hear each day in my office of the impact this has had are listened to by the banks.

“Sterling will still be very volatile” – Andrew Milligan, head of global strategy with Aberdeen Standard Investments

My stand-out for the past year is that economic growth was obviously better than expected. The other stand-out is how political events didn’t cause the problems expected.

This time 12 months back we were quite obviously worried about political issues, such as Brexit and President Trump, but the impacts have been singular or isolated, and haven’t had secondary knock-on implications. A prime example is the Catalonian independence referendum, which didn’t ripple through to other countries. I think it’s a case of “p” for profits is more important than “p” for politics.

Next year is going to be a more complicated year, with the same themes of growth and inflation. US equity markets will do well, as they haven’t yet priced in all the impacts of tax changes, which could have a big impact on profits. On Brexit, sterling is extremely sensitised to all the discussions which will become even more complicated next year. Sterling will still be very volatile, with a very wide trading range.

“I’ve mixed feelings about 2018” – David O’Reilly, managing director, Fenero

Confidence, consumer spending and exorbitant property prices are back! I see 2017 as Ireland getting over the hangover of a 10-year recession.

I’ve mixed feelings about 2018. Most of us will have a few extra euro in our pockets thanks to Budget 2018. There have also been further steps to support the self-employed. They are entitled to illness benefit from December 1st, 2017, and to an increase in the earned income tax credit.

Attempts have been made to encourage residential property market movement by reducing the time period from seven to four years for investors to avail of the CGT exemption. But these changes are painfully small! The housing crisis continues.

And against international comparisons we continue to enter the higher rate of tax at too low an earnings level, which is damaging our ability to attract highly-skilled workers to Ireland to address skills shortages. We are moving in the right direction, however, which is comforting. Roll on 2018!

“Pensions have an image problem, and this needs to change” – Munro O’Dwyer, partner, PwC

2017 has seen continued positive stock market performance, with many funds used by Irish pension investors delivering high single-digit returns. Over the past five years annualised returns of 10-11 per cent have been achieved, which will be creating a feel-good factor for many pension savers.

The disappointment is that 60 per cent of private sector employees didn’t benefit given the low levels of pension participation. Pensions have an image problem, and this needs to change.

For 2018 and beyond we can look forward to the Government’s Action Plan on Pensions, which will herald the introduction of an auto-enrolment pension system in Ireland and the implementation of the IORP Directive which will focus on governance, transparency and risk management across pension schemes.

One possible note of caution is that “financial incentives” around the pension system in Ireland are also anticipated to be addressed in the Government’s plan (and upward revisions are unlikely).

“Pressure on banks to cut rates” – Michael Dowling, Dowling Financial

On the mortgage/property front, the highlights for 2017 were the retention of the Help to Buy scheme, and increased supply of new homes, but we are still not producing enough property to match demand. Fixed interest rates were reduced by all lenders and variable rates by some.

In 2018 there will be more negatives than positives, as house prices and rents will continue to rise.

On the mortgage side, interest rates are not expected to rise, and there will be pressure on banks to reduce their variable rates as Irish borrowers are paying more than our European neighbours. Encouraging to see longer-term fixed rates, with 2.95 per cent 10-year fixed available.

The Central Bank made only slight adjustments to its lending criteria, with first-time buyers faring better than existing homeowners. With increased property prices it will be more challenging for all borrows to qualify for the exceptions on loan to income and loan to value.

It is expected that credit unions will enter the mortgage market in 2018. They have the potential to gain market share, and will be welcomed by all borrowers.

Depositors will face another difficult year, with returns remaining historically low and negative interest rates will continue to be a factor in the market.

“Get ready for a giveaway budget in 2019” – Jonathan Sheahan, managing director, Compass Private Wealth

Domestically, the main positive in 2017 was that the Irish economy has demonstrated continued economic resilience and growth. To me the biggest disappointment though was Budget 2018, which was just as uneventful as the global political landscape, with very few tangible impacts on savers and investors.

One major risk for 2018 I foresee is for Bitcoin investors; it will be very interesting to see how this crypto-currency story plays out; investors need to be aware that their investment could be completely wiped out, and I believe there is a very strong likelihood of this.

The main risk for Ireland Inc in 2018 is if the trend of the global bashing of our 12.5 per cent corporation tax rate continues; this could have serious consequences for the Irish Exchequer.

For savers and investors in Ireland, I believe that Budget 2019, which will take place in October next, will be a lot more generous than the most recent budget, mainly due to the fact that it will most likely be the last budget before a general election. Watch this space.

WHAT YOU CAN LOOK FORWARD TO IN 2018

– Spending your water charges cheque: With Irish Water starting to send out refund cheques, most compliant households should receive their refunds of up to €325 by the end of the year or early in 2018. Of course, it isn't really a bonus; you'll still be paying for water through your taxes.

– Budget boost: As has been tradition in recent years, taxpayers will get a bit of a boost in January as changes in October's budget start to kick in. It won't quite make up for the festive splurge, however. The changes mean that a couple earning €60,000 a year will stand to gain just €13 a month, for example. Stay at home parents will also get an extra boost with the €100 increase in the home carer's credit to €1,200 per year.

– Pension changes: 2018 could be the year we finally start to see a strategy for auto-enrolment, which will see everyone of working age automatically join a pension scheme. While the details of the scheme – will employers be obliged to contribute, for example – remain unclear as yet, more information is promised over the coming year.

– Increase in the State pension: Yes, from the end of March 2018, the State pension is set to rise by €5 a week. It means that for those under the age of 80 and entitled to the full payment the weekly rate will increase to €243.50 or €253.50 for those older than 80. Other payments which are due to rise include maternity and paternity benefit (up to €240); carer's benefit (up to €215); and invalidity pension (up to €203.50)

– A higher minimum wage: From January 1st those earning the minimum wage will see their hourly rate rise by €0.25 to €9.55 an hour. This means someone working 39 hours a week will see their weekly wage rise by €12 to €372.45 a week.

– Renovating your house: If you have been on the fence about the Home Renovation Incentive scheme, which gives you the Vat back on a host of household upgrades such as new bathrooms or kitchens, it's time to make a decision. The scheme, which gives 13.5 per cent up to a maximum of €4,050 based on a spend of €30,000, is due to run out at the end of 2018, and qualifying work will need to be completed before this date.

– Affordable childcare: It promised much when first announced by Minister for Children Katharine Zappone back in 2016, but the new affordable childcare scheme has yet to deliver on much. However, 2018 could be the year when the scheme is finally rolled out, which would offer some much-needed relief for parents. The means tested proposals would see parents with gross income of €70,000 or less receive a subsidy of € 5.38 an hour for a baby under one year of age, to €3.96 an hour for a child in school.

WHAT YOU CAN (PROBABLY) DO WITHOUT

– Ever-rising property prices and rents: If you're an investor or someone who wants to sell their house and retire overseas, house price and rental inflation might put a smile on your face. For everyone else, however, it's becoming a case of how much more can people be expected to take? Unfortunately, however, all indicators suggest that price and rental growth will continue into 2018, with double-digit hikes expected in the former and price growth of between 4-7 per cent for the latter. It means that by the end of the year the average property in Dublin could be charging a staggering €2,000 rent a month.

– Property tax: With a revaluation date looming in 2019, a decision is likely to come at some point over 2018 as to what will happen our property bills. While the Government is unlikely to order a full revaluation, give the rapid acceleration in house prices since 2013 – Dublin house prices have risen by about 85 per cent since the crash – 2019 is nonetheless likely to mean higher property tax bills in one form or another.

– Sugar tax: If you're not a fizzy drink fiend the introduction of a sugar tax won't cause you an undue expense. If you are, however, you can expect the cost of your minerals to rise when the tax is introduced next April. It will mean that a two-litre of Fanta, for example, will probably rise by an extra €0.60, with the Government expecting that the tax will bring in an extra €30-€40 million.