Home economics... answering your property questions
Published 10/07/2015 | 02:30
Our property expert advises on the mortgage cash back offer and inheritance tax.
Question: I saw Bank of Ireland currently has an offer of 2pc cash back on mortgages which I think is quite good (unless you know of a catch!). I had hoped to take out my first mortgage next year but wonder if I could put this 2pc 'refund' toward the deposit instead (in advance) which would allow me to move sooner? I'm assuming it's all the same to the bank, but I don't have the full 10pc saved up just yet.
Sinead replies: Firstly, I concur with your assessment of the cash back offer - it is very attractive, and as the rebate is uncapped, there is no 'catch' to it, except that perhaps it might make you overlook other, lower rates from different providers. A mortgage is a long term instrument and interest rates continue to be the biggest determining factor in cost, so it's important to take a long view, rather than what looks good today.
As to your main query, unfortunately it comes under the heading of 'Nice Try'. I've been on to Bank of Ireland, and while I can see the logic posed in your question, they have said: "The offer does not provide for cashback prior to drawdown and it does not substitute for saving the deposit."
To be fair, the 10pc deposit requirement is one laid down by the Central Bank and with good reason. A strong savings history shows the bank your track record, ability to repay and protects the bank and customer. Short-cutting it is what got many banks to the place they are now.
Continue to save - you're obviously doing this well as you're nearly there and when you're ready, approach a mortgage broker who will find the best deal for you - with or without cash-back schemes.
Question: I wonder can you help me in regard to Inheritance Tax. If I gifted one of my family, say €10,000, would they have to pay tax on it, or is it included in their inheritance when I pass away.
Sinead replies: In a sense, gifts and inheritances are considered in the same way when it comes to tax (the tax involved being Capital Acquisitions Tax, or CAT). Your question depends on a number of things, the most important being the relationship with the beneficiary, says Michael Bradley of Clear Financial.
Children of disponers (the person giving the gift), are considered a Group A threshold - currently they can receive €225,000 tax free both in life and after death (i.e. gift and inheritance) and these are cumulatively calculated. So, in that case, €10,000 is of no consequence whatsoever, but they can then only receive another €215,000 before Capital Acquisitions Tax hits, which is 33pc.
The Group B threshold is €30,150 which includes parents, nieces, nephews, brothers, sisters and grand-children of the disponer. Again, €10,000 is perfectly fine here, but would limit any future gifts/inheritances to €20,150 before there's a tax implication. There is also a small gifts exemption of €3,000 per year which anybody can gift to anybody else, so this would certainly be the way to start.
The Ryan review
There was a collective shrug of the shoulders offered by the banks in response to Michael Noonan's order to reduce their standard variable rates on mortgages. Michael has the election in mind and must deliver voters… er, mortgage holders.
While the banks he owns on our behalf (AIB, EBS and PTSB) grudgingly put forward rate cuts the others responded with a resounding 'sod off'.
And indeed, why should they listen to his edicts? How would Aer Lingus respond to an order to reduce its prices to match Ryanair? Or VHI to an instruction to knock 10pc off its prices? There would be uproar about ministerial meddling in corporate business, and they're both companies that benefitted from State aid in the past.
Bank of Ireland received a bailout too, largely paid back now and the State's stake is down to 14pc. This emboldened chief Richie Boucher to tell the Oireachtas he wasn't prepared to do any debt deals on arrears, so why would he follow through with interest rate cuts? His agenda isn't to get Fine Gael re-elected, but to regain profitability. They threw in a sop of reduced fixed rates, with the requirement to lock in for a couple of years.
Ulster bank and KBC are here courtesy of a State licence, but with no requirement to comply with Mr Noonan's orders to cut rates, so they didn't. They were bailed out by their own (foreign) parents, and have them to contend with.
So, will Mr Noonan now levy them like he threatened and if so, what rationale will he use? Banks don't do 'moral' arguments.