The latest mortgage lending figures have been released. And while they make for positive reading for first time buyers, up to a point, they are less so for almost everyone else.
First off, the total number of mortgage units is increasing, albeit at a modest rate when compared to the rate of population growth. For example, the level of mortgage lending to first time buyers has caught up with the Celtic Tiger period of twenty years ago. While the growth rate is encouraging, the backdrop to those figures is less so. For example, over the same period, the population of Ireland has risen by almost 1 million people. To put it another way, lending to first time buyers today is about where it was in 2006, but today, there is an additional 1million people competing for those mortgage resources.
Property investing
Where the figures are particularly interesting is in respect to retail property investing. In H1 2025, the total number of mortgages drawn down is about 300. Yet in the same period in 2006, it was 13,000. In other words, the market has fallen by 98%. Here, lending requirements on would-be investors means that a 30% deposit is required. On top of that, there is little appetite for such lending within banking. In addition, changes to legislation means that many would-be landlords are avoiding the sector entirely due to a multitude of restrictions ranging from management, taxation and rental income.
Equities and other retail investing
It is here that Ireland is an outlier. For example, there are a range of tax measures in place that make investing unrewarding.
An index-linked Exchange Traded Fund such as the S&P 500 or Stoxx 600 offer broad diversification to retail investors. The entry of trading platforms such as DeGiro, Trading 212, Revolut and eToro now provide access to such funds at minimal cost. But for even well-informed investors that know which funds they want, there is a catch.
If we take the example of Tom, someone I met with earlier this week, he works for a multinational here in Dublin. Originally from India, he was shocked to learn there are four highly restrictive practices covering ETF investing in Ireland:
- The personal tax-free threshold is just €1,270.
- Exit tax is 41%
- Deemed disposal every 8th year is applied and
- Losses on funds cannot be carried forward
By comparison, in the USA, UK, or even Indian market, tax on investment returns is often about 20%. It can be lower depending on the duration the investment was held. And the deemed disposal rule is a massive nuisance to investors that are forced to report, file and pay taxes on investment returns that have not been realised.
Ireland is an outlier in money management
Across the Eurozone today, Ireland stands out when it comes to cash management. It continues to have one of the highest percentages of cash held in overnight deposit accounts. According to the latest data released from the Central Bank of Ireland, approximately 90% of cash in Ireland sits in overnight deposit accounts. The average across the Eurozone is 55%.
I regularly encounter clients that will have tens and even a hundred thousand Euro or more sitting in a current account earning 0%. Not only do they not earn any income, but their cash is also losing value at a rate of about 2% per year due to inflation. And due to low levels of financial literacy and confidence, many fail to fully calculate the financial cost of their decision.
Other factors
There are many investment fees that brokers and advisers charge their clients. Someone in Newark, New Jersey could invest $10,000 where their investment costs are just 4 basis points or $4 for every $10,000. Capital gains tax is 20% (this could be lower depending on the time the investment was held). By comparison, an investor in Ireland could be facing fees of 100 – 150 basis point or more. In other words, the rate of net growth is hijacked even before the investment yields have an opportunity to work.
The net result
Using the example of two brothers, one living in Navan Co. Meath and the other living in Newark, New Jersey. If both invested €40,000 for a 7-year period, assuming for 10% growth and factoring for management fees of 4 basis points in the US and 150 in Ireland, and the respective CGT or Exit Tax of 20% and 41%, the net profit result would be:
- Brother in Newark nets €30,200
- Brother in Navan nets €18,695
In other words, the brother in Navan earns €11,505 less due to higher taxes and recurring management fees.
Financial literacy plays a role
The lack of general investment knowledge also plays a role in the market situation in Ireland. Many people have low levels of financial literacy and because of this, are either reluctant to ask questions or admit they do not know how investing works. It also results in almost no one ever asking their elected representatives to advocate for change. And because of this, they are much more likely to not invest at all.
Summary
The market opportunities for retail investing in Ireland have never been so good with the arrival of platforms that provide quick, low-cost access. But due to legacy tax policies and high costs, Ireland remains a European outlier. Most people continue to leave their money sit in a zero-interest deposit account where its value is corroded by ongoing inflation. Without meaningful intervention, this practice is unlikely to change.
Where Government can have a positive impact would be by:
- Slashing the exit tax currently applied on ETF’s and diversified funds to 20%
- Eliminating the 8-year Deemed Disposal requirement
- Allowing investment losses to be applied across all personal income for up to 5-years
- Increasing the personal tax-free threshold to €5,000
This would support investors of all ages, including those saving for college education, additional income in retirement or for a long-term financial need. Surely if we are to encourage a more broad-based investment and entrepreneurial mindset across Ireland, the best place would be to start at home!
Frank Conway is Founder of MoneyWhizz, the financial literacy initiative.
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