- The government’s COVID-19 income supports bolstered household incomes and debt sustainability, particularly in lower-income and highly indebted households, throughout 2020.
- In Q2 2020, median household gross income fell by 1.7% relative to the same period in 2019, before returning to annual growth of 3% in Q3 2020.
- While debt ratios have risen for the most indebted households, these remain far below what they would have been without COVID-19 income supports.
The Central Bank of Ireland has today (23 February 2021) published an Economic Letter entitled ‘The Impact of COVID-19 on the Incomes and Debt Sustainability of Irish Households’. Authored by Reamonn Lydon of the Central Bank and Brian Cahill of the Central Statistics Office (CSO), the Letter captures findings from a joint Central Bank/CSO research collaboration on the social and economic impact of COVID-19. A CSO Frontier Publication that accompanies this Letterdescribes in detail the data sources and how they are combined.
The Letter finds that COVID-19 government supports have significantly mitigated the impact of COVID-19 on household incomes and debt sustainability. During Q2 2020, when public health restrictions were at their most stringent, gross income for the median Irish household fell by 1.7% compared to Q2 2019. By Q3 2020, when the first phase of restrictions began to ease, incomes were 3% higher than in Q3 2019.
The Letter notes that, while many households would have been eligible for pre-existing supports such as Jobseekers’ Allowance, the basic level of these supports is lower than that of supports put in place for COVID-19. It is therefore estimated that without government income supports, and in the absence of any other replacement income, median gross household income would have fallen by 20% in Q2 and 6% in Q3 2020.
The Letter’s findings indicate that income supports are most beneficial for lower-income households in terms of the contribution to year-on-year income growth. This does not imply higher-income households do not avail of these supports; rather, it means that the relative contribution of the supports to the gross income of higher-income households is smaller.
The Letter also sets out the impact of COVID-19 income supports on the debt sustainability of Irish households. Households with any type of debt, such as mortgages and/or consumer loans, saw a marginal increase in median debt-to-income ratios, from 60.7% of gross income in Q1 2020 to 60.9% in Q2 2020. However, this fell again in Q3 as incomes grew. Increases in the debt-to-income ratio for more indebted households (the top 10% of households by debt-to-income) increased from 342% to 376% of gross income. The Letter estimates that, without government income supports, these increases would be considerably larger, at up to 552% of gross income for the top 10% of households by debt-to-income.
Debt-service levels for mortgage debt only tend to be higher than for all debt. In Q2 2020, owner-occupier debt-service ratios increased to 14.8% of gross income for the median household, up from 14.2% in Q1. Without supports, median debt-service would have risen to 17.1% in Q2 2020. For high debt-service households, owner-occupier mortgage debt service increased from 33.6% in Q1 to almost 36.2% in Q2, before falling to 34.2% in Q3. Without supports, the Letter estimates that the debt service for these households would have increased to 58.6% of gross income in Q2, before falling back to 39.9% in Q3 2020.