Ask the expert: What’s the best way to reinvest now that I’m selling my buy-to-let property

Ask the expert: What’s the best way to reinvest now that I’m selling my buy-to-let property

Posted on 19Jul

Our property finance expert answers your questions

I have been involved in property investment for years by way of a buy-to-let which I purchased in 2004. It has done quite well despite everything, but at this stage it’s almost impossible for me to make any return on it with the restrictions on rental income and rent pressure zones, which it is in. I’ve decided to sell up before the market flattens, but my question is what to do with the gain.
 

I anticipate around €186,000 and would very much like to look for property-related investment, possibly commercial but I’m not really sure. What is available for me?  

This is indeed a thorny topic. First things first, I assume your gain is net of Capital Gains Tax which will be payable on the uplift since 2004 and any sale price you achieve.

You also have obligations under the RTB toward tenants, and indeed, longer notice periods are being agreed through the agency at the moment, which will have to be cemented by the Oireachtas, but you should keep yourself abreast of these as they develop.

I know you remain interested in property as an investment vehicle, but wonder whether this is for sentimental or ‘gut instinct’ reasons, which can be an Irish nuance, or whether in fact you ought to be seeking the highest return across all asset classes, or a mix.
I asked Brendan Costello, of Galway-based Talk Financial about his recommendations for property investment. “Very few people still like property who don’t want to physically buy property,” he says. “Most just want out at this stage. The challenge for someone who wants to remain in the market but not in its current mix, is to access property funds on an insured basis. It’s a very slow market in recovery, with downward pressure on retail and commercial buildings as Covid put the market under serious pressure.”

He cites me the example of a pub which fetched €12.5m just before the pandemic hit, while the entire frontage of a nearby shopping centre with nearly 20 units, is currently pricing at €9.7m.

“If you don’t want to buy direct, and I would strongly dissuade from it at the moment given the heat in the market, what you’re buying into is a property fund in the likes of Irish Life or Zurich [insurance company] or buying into retail wholesale over the next four to six years as a passive investor, and there’s not much yield at all”.

Mr Costello adds that if ESG factors (environment, social and governance) are important to you, funding social housing, largely in the UK is also available through investment funds.
“A lack of government support has closed a number that were here such as Arena Capital partners which were identifying and financing secure long-term tenancies”.
As ever, this is an area where specific expert advice is strongly recommended from an independent financial broker, preferably.
 

First-time buyer here. I just want to ask if there’s a possibility of getting an approved joint mortgage for me and my husband if one of us has just been accepted to a job? Or do we need to wait six months to be approved?

I’m going to say it depends, because there’s no hard and fast rule laid down by lenders, or the Central Bank for this, however, good financial management along with the ‘prospects’ of applicants are all taken into account. I’ve seen people get over the line when they’re not yet permanent, because their qualifications and CV are such, that they’re bound to be a good risk.

Think of professionals like a doctor, or pharmacist, for instance. In addition, if they’re not looking for the full 90pc, and the property on which the loan is based is worth far more than the loan being requested, lenders aren’t so hard and fast on certain rules.
I don’t know your precise circumstances, but I’m going to assume that as first-time buyers you’re looking for the maximum loan available. Joey Sheehan, author of The Mortgage Coach agrees there is a ‘possibility and maybe a probability’ you won’t need to wait six months.

“If there is no probationary period then some banks would have no issue approving you once you can provide one payslip from the new employer on the basis that your husband has moved straight from a similar role with similar wages. If a probationary period applies, they may want him to complete it before they will advance funds, unless your husband is a higher earner and works as a professional or is state employed. Depending on your income it may determine if [the] bank would waive probation also, as if you are close enough to qualifying for the full loan on your own, they may waive completion of [the] probationary period.”

 

Source: https://www.independent.ie/life/home-garden/ask-the-expert-whats-the-best-way-to-reinvest-now-that-im-selling-my-buy-to-let-property-41840038.html

 


Can an inheritance be used for a deposit as we have no savings?

Posted on 09Jul

Q My wife has inherited a home with her two siblings. They have made the decision to sell it. We expect to have €200,000 in cash in six to nine months’ time. We have not been saving. She is self-employed and her salary fluctuates, but she has made a minimum of €50,000 in the last three years. I work as an engineer in a global software company and my salary is €90,000. I also take home €30,000 a year in bonus payments and shares. Can we use the €200,000 as our deposit, and still get a mortgage, even though we haven’t been saving?

Yes, absolutely, you can use the €200,000 you are about to inherit as a deposit, is the answer from Joey Sheahan, head of credit at online broker MyMortgages.ie. If you have been paying rent, then the monthly rental payments will serve as proof to the lender of your ability to meet monthly mortgage repayments, he said. If you are not paying rent, then you have ample time, between now and when you receive the inheritance funds, to start saving now to be able to show the necessary savings record of six months to the mortgage provider, Mr Sheahan said.

Q My wife and I are currently insured under Vhi One Plan Extra. This plan has an annual cost of €1,646.78 each. She is aged 71 and I am 75. We are both relatively healthy and have full medical cards. Vhi Healthcare recently sent me an email saying that my plan is being replaced by a plan called Enhanced Care Complete 75. No details of this plan, or its cost, were provided by the health insurer. Could you recommend an alternative plan, or an alternative provider if necessary? We have been with Vhi Healthcare for almost 50 years now.

The One Plan Extra scheme is one of the many plans that have now been retired by Vhi Healthcare. It covers up to semi-private in private hospitals with some refunds on eligible out-patient expenses, according to Dermot Goode of TotalHealthCover.ie. Before considering the alternative plan proposed by Vhi, which is the same cost as your existing plan at €1,641 per adult, Mr Goode said you should consider an alternative Vhi corporate plan called PMI 3613. This costs €1,340 per adult. He said this is an excellent scheme covering the same hospitals, subject to a small excess for each private hospital admission (€75 per claim). It includes excellent high-tech cardiac cover and higher refunds on eligible out-patient expenses with no excess to pay first, the broker said. If you are open to switching insurer, you could also consider the 4D Health 2 scheme from Irish Life Health at €1,351 each, or the Simply Connect scheme from Laya Healthcare at €1,361 each, Mr Goode said.

Q I contribute 25pc of my income towards my pension, which is with Irish Life. I’m fully conscious of how markets can fluctuate, particularly this year. That said, I am losing money at the moment, which is hard to accept. I wonder should I stop my contributions altogether or should I keep going? Any advice would be appreciated.

Stock markets are volatile and will fluctuate up and down over time. They are particularly volatile at the moment given what is happening in the world. A long-term view is best, according to Joey Sheahan, director of MyLifeCover.ie. He said he would not worry about a loss like this in the short term, as it is inevitable that you will see losses for some of the years over, say, a 30 or 40-year period. When values fall in the market, that is the best time to buy as there is an opportunity to buy units at a lower level, which will hopefully recover to previous levels over time, the financial adviser said. Mr Sheahan said you should continue your contributions to your pension, on the basis that you are buying at a lower level than previous values. It is also important to review your risk profile and ensure that you are invested in the appropriate funds. For example, somebody with a high-risk appetite could invest in funds which could show much higher movements. This might include, say, a 20pc increase or decrease in values in a short period. Someone with a low-risk appetite could invest in lower-risk funds, which would have much smaller movements, maybe moving 3pc or 5pc up or down in a short period. Mr Sheahan recommends that you seek advice from a financial adviser before making any decision about your pension.

Source: https://www.independent.ie/business/personal-finance/can-an-inheritance-be-used-for-a-deposit-as-we-have-no-savings-41825924.html

 


€400m ‘First Home Scheme’ to help first time buyers

Posted on 07Jul

A new Government scheme, set up to make it easier for first-time buyers to afford a new build home, has opened for business today.

The €400m ‘First Home Scheme’ aims to bridge an existing affordability gap by providing buyers with part of the purchase price for their home, in return for the scheme taking a minority equity stake.

The maximum stake that the scheme will take is 20%, if the buyer is also availing of the Government’s separate Help to Buy scheme, and 30% if Help to Buy is not used.

The scheme is available initially to first-time buyers and other qualifying homebuyers, including people affected by a relationship breakdown or insolvency, who are taking out mortgages from AIB (including its EBS and Haven Mortgages businesses), Bank of Ireland or Permanent TSB.

Other mortgage providers may join the scheme in the coming months.

It is open to buyers of newly-built houses and apartments in private developments.

When someone who has bought a home using the scheme subsequently decides to sell it, he or she will be required to use the sale proceeds to redeem the outstanding mortgage and pay to the scheme the portion of the sale proceeds that corresponds to the scheme’s equity stake.

For example, if someone received 20% of the purchase price when they bought the home, he or she will have to pay the scheme 20% of the proceeds when they sell the home.

Scheme users will have the option, but not the obligation, to buy out some or all of the First Home Scheme equity stake at any time, if they wish and have the resources to do so.

No payments are due to the First Home Scheme if the equity stake is bought out in the first five years of ownership.

From year six onwards, scheme participants will be liable for a service charge.

 

The scheme is making €400m available, to facilitate the purchase of up to 8,000 homes over a five-year period, subject to demand.

“This scheme we are launching today will support first-time buyers and those seeking a fresh start by helping to bridge the gap between what they can afford and the price of the home they wish to purchase,” said Darragh O’Brien, Minister for Housing, Local Government and Heritage.

As a founding partner, Bank of Ireland said it is investing €70m into the First Home Scheme.

Bank of Ireland said that supporting the construction of new homes is of strategic importance for the bank.

“We finance homebuilding nationwide that aims to provide suitable options for all home buyers,” it said in a statement.

Alan Hartley, Director of Home Buying, Retail Ireland, said, that Bank of Ireland strongly supports the ambition of many of its customers to own their own home.

“Our participation in the First Home Scheme as a founding member reflects our ongoing commitment to help first time buyers get their first step on the property ladder,” Mr Hartley said.

“We are also delighted to be a part of a scheme which supports the delivery of energy efficient homes and a societal move towards a low carbon future,” he added.

AIB has today also welcomed the launch of the First Home Scheme, which forms part of the Government’s Housing for All plan.

Colin Hunt, the chief executive of AIB, said that addressing the housing supply deficit is one of the most urgent social and economic issues the country is facing.

“AIB is delighted to welcome this joint initiative, which has opened for applications today, providing more people with the opportunity to own their first home,” Mr Hunt said.

He said that AIB offers those looking to buy their first home a wide variety of competitive rates through our AIB brand, along with our EBS and Haven brands.

“We also offer low green mortgage rates for those wishing to buy energy-efficient homes1 to encourage and support the transition to a low carbon economy,” he added.

Director of Property Industry Ireland, Dr. David Duffy said it had been seeking the introduction of such a scheme for some time and welcomes today’s launch.

“The scheme will offer more families the opportunity to own their own home. The scheme will stimulate the supply of new homes aimed at first-time buyers,” he said.

Property advisor, Savills Ireland said it was delighted to see the scheme begin.

“Affordability is the central issue at the heart of Ireland’s housing problem, therefore we welcome the government’s intervention to bridge the affordability gap by providing buyers with part of the purchase price for their home,” said David Browne, Director of New Homes.

“Although it won’t solve the overall issue of affordability, it is a step in the right direction.”


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Call on banks to grant 12 month mortgage approval

Posted on 30Jun

A leading mortgage broker is calling on the country’s eight main lenders to increase the mortgage approval timeframe from 6 to 12 months.

Experts at online brokers MyMortgages.ie are reporting swathes of borrowers getting on average two or three mortgage approvals from lenders because of the time lag between their initial approval and finding a property.

Joey Sheahan, Head of Credit at MyMortgages.ie and author of The Mortgage Coach explained the situation.

“The most recent BPFI statistics showed that there were 5,355 approvals in May 2022 alone – 2,640 of which were for first time buyers,” he said. “From what we’re seeing on the ground, there’s a probability that up to 40% of these applicants were also approved for a mortgage in the last 12-24 months, but have not been able to find a suitable property in the intervening period.

“These volume of these reapplications could be reduced and could significantly lessen the workload of both borrowers and lenders alike, and could, in many cases, result in quicker turnaround times for mortgage approval in the market overall.”

MyMortgages.ie contend that only around two-thirds of the €1.45bn approved in May is likely to be drawn down, based on the current approval process and due to the lack of housing supply.

“The dearth of supply of housing in this country is likely to be with us for many years to come unfortunately. In the meantime, we have to look at other ways of alleviating the stresses of potential purchasers, and expediting the process, where possible, for those who are fortunate enough to be in a position to buy,” Mr Sheahan said. “If banks were to introduce a 12-month approval as standard, which some banks previously offered, it would have a significant impact on the marketplace. Some estate agents won’t allow borrowers to even view properties if they do not have a current approval, meaning that borrowers are forced to keep renewing their approval.

“As far as I can see, there’s really no impediment to banks offering a 12-month approval. There would be no risk to lenders because prior to issuing a loan offer, which is the formal contract between the lender and the borrower, the bank can always request an update from borrowers on any change of employment or other circumstances in the interim that would have a negative implication on their financial status. A mortgage approval is always subject to change prior to draw down.”

Source: https://www.independent.ie/life/home-garden/ask-the-expert-whats-the-best-way-to-reinvest-now-that-im-selling-my-buy-to-let-property-41840038.html

 


450,000 homeowners facing higher mortgage rates as early as July

Posted on 25Apr

MORTGAGE holders have been warned that interest rates could rise as early as July, adding to the cost of servicing variable and tracker mortgages.

Some 450,000 of homeowners are still on a combination of variable and tracker rates.

Source: https://www.independent.ie/business/personal-finance/property-mortgages/450000-homeowners-facing-higher-mortgage-rates-as-early-as-july-41585487.html


Mortgage switching activity increases sharply year on year

Posted on 21Apr

Ireland’s mortgage switching market is exploding and not ahead of time – this is according to MyMortgages.ie, the online mortgage brokers who are reporting a 39 percent increase in their own levels of switching activity between March 2021 and March 2022.

The mortgage experts say there are a few main drivers to the avalanche of people looking to switch – namely KBC and Ulster Bank leaving the market, a sharp increase in competition, and some awareness around possible oncoming rate rises from the ECB. MyMortgages.ie are reporting that in the last 12 months alone

ICS and Avant Money introduced interest rates at 1.95 percent for up to five years fixed.

Finance Ireland and Avant introduced long term fixed rates up to 25 or 30-year fixed terms.

Haven Mortgages introduced a green rate of two percent fixed (all the way to 90 percent Loan to Value for four years with €2,000 cashback for switching.

The mortgage experts say they expect the volume of switching activity to ramp up to an unprecedented level as the year progresses. MyMortgages.ie have set out four examples of average cases in which the mortgage holder in question was able to make big, but not uncommon, savings:

Case 1

Currently on a standard variable rate of 4.25 percent with KBC or Ulster. Loan amount owing is €200,000 and value is €400,000 = 50 percent Loan to Value. Term remaining 30 years.

New interest rate 1.95 percent meaning repayments reduce by €249 monthly or €3,988 annually or €89,530 over 30 years.

Case 2

Currently on standard variable rate of 4.25 percent with KBC or Ulster. Loan amount is €300,000 and value is €400,000 = 75 percent Loan to Value. Term remaining 30 years.

New interest rate 2.15 percent meaning repayments reduce by €343 monthly or €4,116 annually or €123,480 over 30 years.

Case 3

A customer that owes €300,000 on a variable rate of 4.25 percent with KBC or Ulster Bank, with 30 years remaining, would have monthly repayments of €1,475.

A 0.5 percent interest rate rise would increase this to €1,564, which is an annual increase of €1,068 or €32,040 over 30 years.

A one percent rise in the ECB’s benchmark rate would increase the monthly repayments to €1,656 which is an annual increase of €2,172 or €65,160 over 30 years.

Tracker Mortgages MyMortgages.ie have observed that, in recent months, they have seen a steady increase in tracker rate mortgage holders enquiring about long term fixed rates, fearing that future interest rate rises could wipe out the benefit of their low margin trackers.

Case 4

A borrower that has €300,000 outstanding on a tracker rate of one percent, with 20 years remaining, would have a monthly repayment of €1,379.

A 0.5 percent interest rate rise would increase this to €1,447 – which is an annual increase of €816, or €16,320 over 20 years.

A one percent rise in the ECB’s benchmark rate would increase the monthly repayments to €1,517, which is an annual increase of €1,656 or €33,120 over 20 years.


Five tips for switching your mortgage provider and getting the best deal

Posted on 29Mar
The number of people switching their mortgage to avail of a better deal is soaring. The latest figures from Banking and Payments Federation Ireland found that there was a near 43% jump in people switching their mortgage over the last year. Given that making the switch could save you thousands of euro, Niamh Hennessy has compiled the top five tips to consider when switching your mortgage.
There are very strict criteria to be met when getting a mortgage and it is the same when it comes to switching.

Bite the bullet

You may still be traumatised about how hard it was to get your mortgage over the line in the first place that the idea of switching fills you with dread. However, it can be done and switching will not be as difficult as getting your first mortgage. Get into your mind that switching mortgage provider could save you thousands of euro and go for it. Generally it will take around eight weeks to complete a switch so try not to get frustrated and abandon the process if you feel it is taking too long. Joey Sheahan of MyMortgages.ie said every mortgage holder should reassess their situation every three years regardless of what rate they are on.

Costs

There will be some costs involved in switching mortgage provider, mainly the cost of a solicitor. However the bill should not be as big as it was when you were first getting a mortgage. This can deter many people from switching but your mortgage is a marathon rather than a sprint and short-term pain can lead to long-term gain. Your solicitor too will do a lot of the background work on this. According to Bonkers.ie legal fees for switching can be up to €1,500 plus VAT.

Deals

Increased competition in the market means that switching is now easier and more cost-effective than ever.

Keep an eye out for deals. Banks make a lot of money from mortgages and they will want you to switch to them. Often banks will offer switchers lump sum payments, which is often around €2,000 or even cover the cost of your solicitor’s fees. According to Trevor Grant of Irish Mortgage Advisors increased competition in the market means that switching is now easier and more cost-effective than ever.

Watch the rate

Although a deal is great make sure you focus on the rate. You could be paying this mortgage for another 20 years and while a lump sum would be nice, the lower the interest rate is the less you will pay over time. Mr Sheehan points out that a borrower could save €70,000 in interest over the life of their mortgage by reducing their rate from 3.2% to 1.95%. There’s a lot of talk in the market too that interest rates could rise which would mean higher mortgage repayments. Mr Grant said that mortgage holders should be asking themselves how they might deal with any such future increases and now is a good time to switch if you can.

Not everyone can switch

There are very strict criteria to be met when getting a mortgage and it is the same when it comes to switching. If your financial circumstances have changed since you first got your mortgage it may not be as plain sailing as you think. A mortgage switching application will take into account your current financial circumstances. So, if for example you reduced your hours at work to three days instead of five days and have two additional children since you first took out your mortgage then the playing field will be different. That is not to say it wouldn’t be possible but it is something to bear in mind. Generally too you will not be able to switch if you are in negative equity on your mortgage. If you are on a fixed rate too you may need to wait until the term of that deal is finished.

Source: https://www.irishexaminer.com/lifestyle/people/arid-40839290.html


House price inflation surges to 14.8% – highest in nearly seven years

Posted on 21Mar

Latest CSO numbers show average price paid for a home over last 12 months was €328,235

House prices grew at an annual rate of 14. 8 per cent in January, the sharpest level of growth seen in the market in almost seven years, as demand continues to outstrip supply.

Central Statistics Office (CSO) figures show the State’s property market continues to be stoked by pandemic-related factors, such as increased savings, remote working and lower-than-anticipated supply.

“We’re now seeing much larger deposits on the back of the pandemic, primarily down to the fact that some first-time buyers have been able to save up substantial deposits,” Joey Sheahan of consumer advocacy group MyMortgages.ie said.

“ While the cost of buying continues to increase, the cost of renting is almost always higher,” he said.

The CSO’s headline rate of inflation was up from a rate of 14.3 per cent recorded in December and has risen almost continuously since the start of the pandemic. In Dublin, where supply problems are most acute, prices rose at an annual rate of 13.3 per cent while prices outside the capital were 16 per cent higher.

Source: https://www.irishtimes.com/business/ey-entrepreneur-of-the-year/house-price-inflation-surges-to-14-8-highest-in-nearly-seven-years-1.4828431


Residential property prices climb almost 15% in 12 months

Posted on 16Mar

The average price of buying a residential property increased by 14.8 per cent nationally between January 2021 and January 2022 according to figures released by the Central Statistics Office (CSO).

The increase was slightly higher outside of Dublin (16 per cent), while the increase in the capital was noted as 13.3 per cent.

The median price of a home purchased in the 12 months to January was found to have been €280,000 nationally. On an area basis, Longford had the lowest median price (€130,000) while Dún Laoghaire-Rathdown in Dublin had the highest median (€595,000).

The latest figures show a 0.9 per cent monthly change compared to December 2021.

In terms of residential property type, prices of houses in the Border region saw the largest annual percentage change (+24.7 per cent), followed by houses in the southeast (+18.8 per cent) and houses in the midlands (+18 per cent).

The prices of apartments nationally (excluding Dublin) jumped by 17.5 per cent, and by 11.8 per cent in Dublin.

The CSO figures show the national index is now 3.3 per cent lower than its highest level in 2007, with Dublin residential property prices 11 per cent below their February 2007 peak, while prices across the rest of the country are 4.7 per cent below their May 2007 high.

Since their low point in early 2013, national prices have risen by 115.6 per cent. Dublin’s prices have soared by 120.4 per cent from their February 2012 low as the rest of Ireland has noted a 119.4 per cent increase from May 2013.

Commenting on the figures, head of credit with MyMortgages.ie Joey Sheahan says first time buyers continue to make up a strong cohort of the market.

“Demand for homes is unlikely to slow down, given the pace at which housing stock is entering the market. The extension of the Help-to-Buy Scheme remains a big support for first time buyers.

“We’re now seeing much larger deposits on the back of the pandemic, primarily down to the fact that some first time buyers have been able to save up substantial deposits.

“While the cost of buying continues to increase, the cost of renting is almost always higher. As such, we’d advise those in a position to buy, to go ahead once they find a suitable property,” he adds.

Mr Sheahan notes the number of ‘trader uppers’ is also on the rise since the pandemic, explaining: “People have had a chance to take stock, and many are deciding that greater space in the home is important to them.

“With the cost of building and building supplies on the rise, and the difficulty in getting tradespeople, people are opting for turn-key trade ups in greater numbers.”

Source: https://www.breakingnews.ie/ireland/residential-property-prices-climb-almost-15-in-12-months-1274836.html


Your personal finance questions – Should we buy a home now or wait until I get a permanent position?

Posted on 05Mar
Q I am a doctor employed by the HSE and my husband is a journalist (employee). Our combined income is €150,000 a year. I expect to qualify as a consultant in two-and-a-half years. We have saved €45,000. Given the housing crisis, we are not sure if we should keep saving, and buy when we know our permanent location, as I don’t know where I will get an appointment yet. Or should we buy now in Dublin, to get on the property ladder?

You could borrow at least three-and-a-half times your combined income, which would be a loan amount of €525,000, said head of credit at online broker MyMortgages.ie Joe Sheahan.

Source: https://www.independent.ie/business/personal-finance/your-personal-finance-questions-should-we-buy-a-home-now-or-wait-until-i-get-a-permanent-position-41413732.html


MyMortgages.ie is a Proud Partner of Avant Money

Posted on 09Feb

Avant Money (formerly known as Avantcard) launched today and confirmed its new mortgage products are now available to Irish customers, with fixed rate mortgages starting from 1.95%, by far the lowest rate in the market today.

The company has been providing credit cards and personal loans to Irish consumers for over twenty years. Avant Money is owned by Spanish banking group Bankinter, which also has operations in Portugal and Luxembourg.

We, at MyMortgages.ie, are proud to announce that we are one of Avant Money’s partners and we are here to guide and advise switchers, movers and first-time buyers on the range of these new products.

Joey Sheahan, Head of Credit, MyMortgages.ie and author of The Mortgage Coach says:

Avant Money’s entry into the Irish market is the best news for Irish mortgage holders. We have long seen European rates well below 2% compared to closer to 3% for Irish mortgage holders, and now, for the first time since before 2008, rates below 2% are available to homeowners in Ireland. It’s a once in a decade or maybe even 2 decade opportunity where a new lender enters the Irish market and reduces interest rates to this extent. We are delighted to be one of Avant Money’s partners and our advice to mortgage holders is now is the time to review their current mortgage, even if they have done so recently. A mortgage holder with €300,000 outstanding with 32 years remaining and Loan to Value of below 60% can save €158 monthly or €60,000 over the term of mortgage based on reducing interest rate from 2.95% to 1.95%”.

If you would like to talk to Joey about your particular situation complete the form below:

 


How to go about gifts to take stress out of mortgage deposit

Posted on 11Dec

How to go about gifts to take stress out of mortgage deposit

Know your rights when seeking help from parents to get on property ladder

Forget AIB, Bank of Ireland or any of the remaining stalwarts of Irish finance. It’s the Bank of Mum and Dad that is giving most first-time buyers a step on the property ladder.

According to data from the Banking and Payments Federation (BPFI), 42pc of new home purchasers used a parental gift toward their deposit. And they needed it: €52,500 is now required on average to get a first-home deposit together – a doubling from a decade ago. And despite a record 31,000 new builds commencing this year, it isn’t anywhere near enough, or fast enough, to curb house price inflation.

The total value of gifts alone was €210m in the first six months of the year, and that’s worrying enough for the Government to have at least considered taxing it in the budget. It is inequitable for one – not everyone has a wealthy parent to contribute – and of itself, it inflates house prices.

Ray McMahon, chief commercial officer at ICS Mortgages says: “This would reflect what we are seeing from our customers also. What is particularly of note from the BPFI figures is the significant number of second-time buyers who are also utilising gifts – a trend we are increasingly observing.”

There are conditions attached, but it’s normal for a lender to facilitate gifts as part of the deposit as long as it’s clear who’s giving it and under what circumstances, he says.

And when is a ‘gift’ a ‘loan’ or vice versa? If it is due to be repaid, it should have interest charged, with gift tax implications – this is what is being considered in the future by Government. But with ordinary interest rates at zero, it’s difficult to see how parents could charge kids interest on a loan they’re happy to hand out.

If it’s gifted, it matters by whom and for how much. Such things don’t bother loving parents, but they do concern Revenue officials and banks.

With house prices inflating by 12.4pc year-on-year and rents up by more than 7pc, what is a saver to do?

Interest rates are not only zero, but negative, given the effect of inflation – currently running close to 5pc. Yet try to do anything risky with the cash by way of eking out a return and the lender immediately frowns. Coupled with having to shell out more income toward rental while also saving, makes it very difficult.

 The Rules

First-time buyers need not just 10pc of the purchase price, but an additional 2pc or so to cover stamp duty and fees. They need to be able to show capacity to service the debt, plus 2pc added for ‘stress test’ purposes along with their mortgage protection and home insurance. Oh, and they need to buy clothes, pay bills, food, pay creche fees and the other sundries of modern life.

Joey Sheehan, author of The Mortgage Coach, says the purpose of the Central Bank’s macroprudential rules on lending (which were not changed in its latest review), “is to ensure buyers cannot borrow more than they can afford to repay”.

He recommends transferring savings into one dedicated account to save a regular amount each month. “Avoid making withdrawals. It’s better to save less on a monthly basis and then add extra when you can rather than over-saving and dipping into it”.

He adds a lender will grant Approval in Principle (which lasts six months, but is easily renewed), when they can see the required percentage of purchase available.

Legal

When it comes to gifts, there are strict rules, both legal and financial, in place. Firstly, a gift must be just that. Banks don’t like to see additional loans being set up, either from the Credit Union or Mum and Dad, which could reduce a borrower’s capacity to service the mortgage.

They will typically demand a ‘gift letter’ or in some cases a Deed of Gift, witnessed by a solicitor to show that the parent has no expectation of getting their money back and that no secondary claim is put on the property. If there is capital acquisitions tax due, they’ll want evidence it has or can be paid.

A parent can gift up to €335,000 to a child without gift tax being applied. However, this is a lifetime cumulative limit, from both parents, for all gifts, and inheritances and any future amount over this threshold will be taxed at 33pc.

A grandparent can gift up to €32,500, again with the same rules applying.
Separately, there is a Small Gifts Exemption permitted of €3,000 per person, per year, from anybody to anybody else.

If it is done cleverly and with aforethought, four parents (his and hers) could gift a couple this amount over the two months (December and January) amounting to €48,000 in total without a tax implication, according to Eoin McGee, author of How to Be Good With Money.

Help to Buy Scheme

Under the Government’s extremely generous tax refund scheme, a gift may not even be necessary, with Revenue refunding four years of tax, to a maximum of €30,000 toward a deposit for a first-time buyer.

Securing a mortgage

Aside from the deposit, there are a lot of things you can do to get yourself mortgage ready. Banks like consistency, stability and diligence. Looking like an attractive borrower can be achieved in a few steps.

Have a good credit record: Missed repayments, even for an insurance premium or small loan is a red alert for lenders. Get your credit history from the Central Credit Register before the bank does.

Keep your spending ‘clean’: We’re all ‘tapping’ our way through life more than ever, so it will be crystal clear to a bank what you’re spending your money on. They get suspicious if they see unexplained large withdrawals of cash, frivolous spending or money being used to servicing a gambling account, even if you’re winning. If you use an app like Revolut or a different account to buy crypto currency or you have a store card, they’ll also want to see that.

Having a constant overdraft not only costs a lot, but it smacks of financial indiscipline. Control your direct debits, cut back and get rid of it six months before you apply for your mortgage.

Your income must be able to service a mortgage if interest rates were to rise by 2pc. This is the ‘stress test’ and banks will apply it before agreeing to lend. Work it out and be prepared to prove it.

Control your ‘nets’: No more than 35pc of net income should go on debt servicing. Pay off existing loans (highest-interest bearing ones) before applying for a loan, even if it means saving for longer.

Source: https://www.independent.ie/business/personal-finance/how-to-go-about-gifts-to-take-stress-out-of-mortgage-deposit-41139886.html


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