Home economics: Answering your property questions
Our property expert gives advice on buying a property to suit both the present and the future and where is best to keep your money on deposit before buying a retirement home.
Question: We've recently had our first child and my husband and I have sold our apartment and are looking at new houses. We are in a position to move and our dilemma is what house type to go for. We know that we want a three or four bedroom house, as we plan to further extend our family, and one we both like has been structured to make it easy to convert the attic and build out at the back. Do you think this could save us much money in the long-term or are we better off trying for a bigger house straight away even though it would be more expensive?
Sinead replies: Congratulations. You are assuming this house is for life, and while that may be the case, buying a house for the next decade is a perfectly fine choice also, just as you did with the apartment.
There are lots of things to take into account including budget, location, access to facilities etc. If you plan on having more children, might that mean one of you works part-time? Will that affect your ability to repay a bigger mortgage?
Property developer Patricia Hinch of Regency says: "All too often we select a house based on our current needs, but they change pretty fast, particularly if they have more kids, and when they hit those teenage years, you'll need a safe haven somewhere in the house, so one that can easily add, say 400 sq ft in an attic conversion, could prove to be a real bonus. Assuming a three-bed priced at €290,000 versus a four-bed priced at €335,000, the differential is €45,000. An attic conversation, in a suitably configured home, will cost between €20,000 - €25,000, giving you a fourth bedroom for half that."
It's worth getting a quote for an extension/conversion and see how it plays out against the bigger house.
Question: We will have €660,000 from the sale of our house. My wife and I want to rent for a while before we decide where to buy our retirement home. We have never lived in an apartment and want to try it out before committing. Where is the best place to keep this money in the meantime? My son mentioned that the banks have a limit for cash to keep it safe which I didn't realise. Where has good interest?
Sinead replies: You have a few issues here and rather than focusing on the interest rate, you need first and foremost to keep the money safe while you make your decision. Interest rates are paltry across the board and qualifying for even slightly higher amounts would involve you tying up the money, perhaps for a longer period than you would be happy with.
That said, any bank will be happy to mind your money, so start with your own in the first instance. Good comparison websites such as bonkers.ie or consumerhelp.ie will show you what's on offer. Bear in mind DIRT tax of 41pc is payable unless you are over 65 and your joint income is less than €36,000 pa.
For example, Rabo Direct will give you 1pc on a 60-day notice account, meaning €6,600 gross (or €3,894 net) over one year. Anyone who earns 'unearned' income over €5,000 pa must also pay 4pc in PRSI.
The secondary issue is keeping some of that money to draw upon for your rent. You might be paying a few thousand euro each month, so you should budget to keep some liquid in a current account.
Your son is referring to the Deposit Guarantee Scheme operated by the Central Bank. Deposits up to €100,000 per person, per institution are protected in the event of a bank collapse. This is highly unlikely. However, if you wanted a truly belt and braces approach, you could put €100,000 in three banks, in accounts for yourself and, separately, your wife.
This would be onerous and involve a level of hassle that I'm not certain is warranted in the current climate.
The Ryan review
I was reminded this week of the importance of life insurance. They say it's a product which is sold, not bought and its negative connotations are the reason.
Quite simply, unless insurance is mandatory (such as car insurance), we really don't want to have to think about it.
But it's the one insurance product which has fallen dramatically in price over the years and if you haven't reviewed at least your mortgage protection since you took it out, chances are you're over-paying.
Figures from the country's biggest insurer, Irish Life, show that 20pc of its life claims last year and one third of total value were mortgage related. The lending banks got most or all of this money but families got to keep their homes.
Cancer, heart attack and stroke remain the key causes of death, the former scourge accounting for 41pc of claims.
What many people don't realise is that they are paying rates based on old actuarial standards and these days, someone aged 40 can get €300,000 life cover for just over €30 per month.
Anyone who took out an old bank whole-of-life policy with their mortgage is probably paying multiples of that.
Talk to a broker. It's one saving you can make, even on a product you resent buying.