Wednesday 28 September 2016

Will we be caught by new rules if mortgage approval runs out?

Eoin McGee

Published 03/05/2015 | 02:30

Eoin McGee
Eoin McGee

My husband and I got approval in principle from AIB just before Christmas. That approval is valid for six months.

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If we are 'sale agreed' on a house - but haven't fully bought or drawn down the mortgage before the approval in principle expires in June - will we be caught by the new Central Bank lending rules?

Olivia, Celbridge, Co Kildare

Going 'sale agreed' is half the battle in the current climate, so well done.

As you are aware, there are several stages to mortgage approval. Initially, you get approval in principle, which, to be frank, isn't worth the paper it is written on. However, it does give you an indication as to what your borrowing capacity is and allows you to go shopping for a house.

Once you find a house, put a deposit on it and go 'sale agreed', you then need to get a valuation on the property. When the valuation is submitted to the bank, it usually means it does some final checks and moves to loan offer.

It is at this stage that you have something to go on. A loan offer is legally binding - yes, there is wiggle room for the bank but it is something concrete.

When the loan offer is issued, you usually have 60 days to accept it, but be sure to check your loan offer before you do so. Once you have accepted the offer, you should have another six months to draw down the actual cheque and close on your new house. But again, check your actual loan offer first because it can differ from case to case and from bank to bank.

This is the important bit - if you are still sitting on your approval in principle when your approval expires, it's game over and you will be subject to the new rules. However, if you are at loan offer stage, you should be fine.

If your time is just about to expire and you are not yet at loan offer, get the final requirements, such as the valuation in. If you are in the 'queue' for loan offer, I'd suggest you then have a good case to argue with your lender if it doesn't issue the loan offer on time.

So yes, you could be caught by the new Central Bank rules - if you are not very careful.

Get your file to loan offer as quickly as you can, but also be sure to read your loan offer in full when you get it.

Another thing to be wary of in this whole process is the fact that once you sign contracts to buy the new house and pay your 10pc deposit, you are then legally obliged to buy that house even if you die.

So make sure you have the life cover in place when you sign contracts. Don't wait until you are closing on the house.

I started to work for myself about a year ago - after many years of working as a full-time employee.

I have no pension since I left my full-time job and haven't yet gotten around to organising one. I understand I could make a once-off pension contribution around the time I file my tax return.

What would be the advantages of doing so from a tax perspective and how would I go about making that once-off contribution?

Niamh, Donabate, Co Dublin

Firstly, count yourself lucky that you had a pension with your old job - it is estimated that nearly one million people in Ireland have no pension.

Pensions are a great way of reducing your tax bill, getting tax-free growth and getting access to tax-free cash at retirement. There is nowhere else I can invest a client's money and turn €60 into €100 every time they invest.

You are right in your thinking that you can make a once-off contribution around the time of your tax return.

If you are self-employed once the tax year (which is the calendar year) finishes, you have until October of the new year to file last year's return. For example, you have until October 2015 to file the return for 2014. You can also get a few weeks extra to file your return if doing so online.

At any point before you file your return, you can make a payment into a pension plan and claim it against the previous year.

This is not just for the self-employed - PAYE workers can also make a contribution this year in respect of last year before they do a return.

The major advantage of this is that ultimately it will reduce the overall tax you pay when you file your return - and ultimately it also has cash-flow benefits. That is, you can see what way your business year ended before deciding on the level of contribution you want to make.

The amount of tax relief you get will be either 40pc or 20pc, depending on the amount of tax you pay and at what rate.

Setting up a pension is all about finding someone you trust and that you can work with. You need somebody who will give you impartial advice - do not try and do this alone.

Pensions can be as simple or as complex as you want them to be. The investment choices are a lot wider than they were before and the tax-free growth is very attractive.

Eoin McGee is the chief executive of Prosperous Financial Planning

 

Email your questions to lmcbride@independent.ie or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

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