Thursday 29 September 2016

Home economics: Answering your property questions

Published 08/04/2016 | 02:30

House insurance
House insurance

Advice from our property expert on the insurance implications of when your house is idle and the implications of one partner previously owning a property for your first-time buyers status.

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Question: Due to a work placement abroad, I'm moving to the United States for six months, possibly longer. My company is paying for my accommodation there and as a result, I don't want/need to let my house out. I will return a couple of times over that period and want to be able to use it. My brother has said he will check for post etc while I'm away.  Is it necessary to inform my insurance company of my arrangement and if so, is there likely to be an extra premium?

Sinead replies: It's a very good idea to let them know. Most house insurance policies have an 'unoccupancy' clause, that is, a standard period where it's okay to leave the house vacant and still be insured, for when you're on holidays for example. Typically it's just 30 days, however, and you may run into trouble otherwise.

Brian McNelis of the Irish Brokers Association says: "After the 30 days the insurer will impose certain conditions, which you need to be aware of, for example, a requirement to switch water and electricity off at the mains. As you're going to be absent for an extended period, you are essentially going to be requesting an extension of the 30 day unoccupancy clause from your insurer, so there will be a charge or you may require a different household insurance product altogether, which may involve a different premium depending on the risk features."

Typically, an insurer would be concerned about the increase of risk for break in, escape of water or the possibility of fire when a house is unattended and a possible delay in making a claim given your absence - and that's what they're pricing for. Better safe than sorry.

Question: My fiancé and I hope to buy a house toward the end of the year - we are getting married in 2017. I've only ever rented but he did part-own a house in the UK about 10 years ago with a previous partner. This was sold within 18 months and he didn't make a profit on it and there's no mortgage outstanding. My question is, are we considered first-time buyers for tax relief and the house deposit requirements?

Sinead replies: I'm unclear on your query regarding mortgage interest tax relief. This is no longer available on properties bought after 31 December 2012 and, in any event, the relief is being abolished completely in 2017. Stamp duty is 1pc on residential properties valued up to €1m and payable by all buyers.

A first-time buyer is normally defined as someone who has never owned a property at home or abroad at any time, so technically you don't fit the bill and would therefore be subject to the full 20pc deposit requirement, says Bob Quinn from The Money Advisers who adds he has serious reservations about the Central Bank rules.

"Many would-be home owners are precluded from buying because of the vast sums required to do so.

"A non-first-time buyer needs accessible savings of somewhere in the region of €75,000 available to buy a €350,000 house. We are witnessing first hand a dysfunctional housing market and the Central Bank requirements operating in isolation are having negative repercussions for many families."

That said, my view is banks underwrite based on criteria to do with income, indebtedness, loan-to-value ratio etc. In your case, the fact that there was a previous mortgage, which no longer has a bearing on any of this, means you, and they, may consider it irrelevant, but they cannot ignore it if disclosed.

The question you must ask is whether a sin of omission is a sin of commission? I'll leave that one to you.

One of the teasers being discussed in the consultations to form a new Government is some form of State scheme to support first-time buyers.

It might well run along the lines of the UK's Help-to-Buy initiative, which would be welcomed by beleaguered house hunters at their wits' end with the Central Bank's strict deposit requirements.

The way it works is that the borrower puts up a five per cent cash deposit. The State gives an equity loan of up to 20pc and the balance (75pc) is mortgaged in the normal way with a bank.

For a house valued at €200,000 it would see €10,000 coming from the buyer, €40,000 from the Government and €150,000 on mortgage. The repayment for the State loan is interest free for five years, then charged at 1.75pc pa with slight increases, with the borrower repaying the full 20pc on the sale of the house (at its then market value) or after 25 years - whichever comes first. So, if the house sells for (or is valued at say, €220,000, the repayment is €44,000).

There are sensible rules: no buy to lets, no sub-letting, no trader-uppers and the maximum total borrowing can't exceed €600,000.

For Londoners, the equity loan can be up to 40pc, reflecting the huge gap between the capital and rest of the country prices. It also only applies to new builds, rather than second hand.

Yes, it's expensive. Underwriting it is expensive, but doing nothing is also expensive. Time for creative solutions.

The Ryan review

One of the teasers being discussed in the consultations to form a new Government is some form of State scheme to support first-time buyers.

It might well run along the lines of the UK's Help-to-Buy initiative, which would be welcomed by beleaguered house hunters at their wits' end with the Central Bank's strict deposit requirements.

The way it works is that the borrower puts up a five per cent cash deposit. The State gives an equity loan of up to 20pc and the balance (75pc) is mortgaged in the normal way with a bank.

For a house valued at €200,000 it would see €10,000 coming from the buyer, €40,000 from the Government and €150,000 on mortgage. The repayment for the State loan is interest free for five years, then charged at 1.75pc pa with slight increases, with the borrower repaying the full 20pc on the sale of the house (at its then market value) or after 25 years - whichever comes first. So, if the house sells for (or is valued at say, €220,000, the repayment is €44,000).

There are sensible rules: no buy to lets, no sub-letting, no trader-uppers and the maximum total borrowing can't exceed €600,000.

For Londoners, the equity loan can be up to 40pc, reflecting the huge gap between the capital and rest of the country prices. It also only applies to new builds, rather than second hand.

Yes, it's expensive. Underwriting it is expensive, but doing nothing is also expensive. Time for creative solutions.

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