Home Economics: answering your property questions
Q. Myself, my partner and our baby live in a flat over my father's shop rent-free. We are saving for our own house. It is small and we need to move. We have €23,500 saved and approached our bank, as we thought with the Government tax rebate, we may now have enough. They are querying why we haven't been paying rent, although I thought this would be in our favour. I heard from an accountant friend there may be a tax issue - is this true and will it hold us back?
A. You have two separate problems. On the 'tax issue', your friend is correct, but it may not matter. The rent-free status you enjoy may constitute a 'gift' from your father under tax law. As such, Revenue could include it in the cumulative tax-free allowance that a parent may gift to a child during or after his life, which is currently €310,000. A calculation would be based on what the market rent might have been had the flat been let on the open market.
That said, your father is allowed gift you (and separately your partner) up to €3,000 a year each under the Small Gifts Exemption without it forming part of his inheritance to you. Technically, you and your partner would each 'pay' €250 per month in rent to your father who would then 'gift' €6,000 back to you in his year-end accounts.
I asked Eoin McGee of Prosperous Financial Planning about the deposit question. "The problem the bank may have is that even though you have shown you can save €23,500, you didn't do this 'under pressure'. What that means is you didn't have to commit to putting aside a set amount each month like you would have had to if you were also paying rent.
"In other words, there is no proof in their mind of an ability to repay. Where you don't have a rental record or credit history, you need to consider just how you can show the bank you will be disciplined enough to make the mortgage repayments. Your situation shouldn't be a major obstacle and a good mortgage broker will be able to present to a bank in the best possible light."
Q. I asked a local estate agent to manage my property for me at considerable cost - I work in Dublin and can't get home often. He was supposed to vet tenants, collect rent and deal with issues of maintenance and repair. He hardly ever contacts me, which is fine, but now I'm between tenants and a quick visit showed the house is a mess, there are holes in the walls and even a picture is missing. Who do I blame?
A. Well, rather than blaming, find out the facts. What written agreement did you have with the agent? In a full service contract, they should not only be putting a tenant in place, but handling disputes that arise, dealing with breakages, outages etc and definitely keeping you the loop. I don't agree that it's 'fine' that he hardly ever contacts you and perhaps you might have been able to do more in this regard.
That said, of course the property shouldn't be in a mess. While normal wear and tear is to be expected, damage and theft is not.
I presume you will be meeting your agent to discuss the next tenant. It will be worth finding out how often, if at all, he visited on your behalf, whether he withheld the previous tenant's deposit in lieu of the damage by them and how he will address the repairs. If he cannot answer satisfactorily, I'd switch to another agent.
The Ryan Review
We've had lending controls for almost two years now - plenty of time to see if the Central Bank's 'calm down' policy has worked.
While we can see the effects in the sluggish market, with credit still a reach for many (particularly those trading up), the CB's latest report has thrown up a surprising fact: 100pc mortgages are alive and well.
Despite the rules, which state that a minimum 10pc deposit for first-time buyers (to €220,000) and 20pc for everyone else must apply, five lucky (or perilous) FTBs got 100pc loans in the first half of the year. Another few got between 104pc-106pc - perhaps they persuaded the lender of their burning need for new carpets and island kitchen unit! Some of those getting more than 100pc of the purchase price were even in negative equity - 240 of them by June alone.
In all, one in six buyers were 'exempted' from the CB rules, which allows some derogation within its loan-to-value and loan-to-income guidelines. While nobody is supposed to get an exemption on both grounds, a small number managed it.
With the new tax rebate coming into place in 2017, economist Colm McCarthy has warned of the danger in returning to a boom or bust property market. May none of us forget where 100pc mortgages, aligned with low interest rates, got us in the past.
The banks have responded in a lukewarm manner to Mr Noonan's rebate proposals, so we'll wait with bated breath on the consequences.