Sunday 28 December 2014

Home Economics: applying as first-time buyers for a mortgage

Sinead Ryan answers your property questions

Published 27/06/2014 | 02:30

'The bureaucracy and paperwork can be daunting but the good news is that many mortgage brokers won't charge you directly.' Photo: Thinkstock
'The bureaucracy and paperwork can be daunting but the good news is that many mortgage brokers won't charge you directly.' Photo: Thinkstock

Q: My girlfriend and I are applying as first-time buyers for a mortgage. Obviously we are trying to keep costs down. She reckons we should employ a specialist mortgage broker but I think we can do it ourselves.

How difficult is the process and what would be the cost?

A DIY mortgage is a bit like selling your house without an estate agent. You can do it, but it's a lot easier using the services of a professional who does it every day and understands the ins and outs of the process.

The bureaucracy and paperwork can be daunting but the good news is that many mortgage brokers won't charge you directly.

Their fees are paid by commissions earned for placing the business, although these have been cut back sharply so some may charge a fee of say, €500 or so, for the work involved which includes sourcing suitable lenders, preparing and processing the paperwork and managing the loan from application to completion.

I would consider it money well spent in the context of the cost of the mortgage – very often a good broker will cut your costs in other areas and end up paying for him/herself.

The vital thing though is that the broker is independent and not tied to any one institution.

You want a full range of options, so make that your first question.

Q: I have lived in my own house for 16 years. My boyfriend and I would now like to live together either in his house or in another we may buy, while I rent mine.

I understand that rental income will be subject to tax but what is the position should I, at a later date, choose to sell the house, given that for a period the house will not have been my principal private residence (PPR)?

The implications are two-fold. The first relates to the taxation of rental income and the second to taxation on disposal of the property.

Barry Flanagan, of Taxback.com advises: "You are taxable on the profit arising from gross rent received after taking allowable deductions into account which include rates, maintenance, repairs, management, accountancy, administrative costs and interest on money borrowed to purchase, repair or improve the premises.

"Only 75pc of the interest expense can be used and you are also required to register with the Private Residential Tenancies Board.

"The local property tax is not an allowable expense but you may apply for 'wear and tear' of fixtures and fittings up to 12.5pc of the annual outlay for eight years".

He adds: "On disposal, you may be liable for Capital Gains Tax (CGT). It is offset to an extent by the period of occupation as a PPR and the final 12 months before the sale is always deemed to be a period where it was a PPR.

"So if you move out and sell the property in five years, you will be entitled to reduce the taxable gain by 13/17ths (i.e. your 12 years of occupation plus the last year "deemed" occupation out of the total ownership of 17 years)."

The Ryan Review

Not everyone is HAPpy at the introduction of the new Housing Assistance Payment (HAP) which is being piloted in six local authority areas – but I'm hopeful of its success.

It's about time that we got to grips with the touchy area of rent supplement, which, far from being the short-term stop-gap it was intended to be, has become the mainstay of 78,000 families – and a key deterrent to preventing them getting back to work as you can only receive it if you are on benefits.

HAP makes changes in a number of ways:

  • The payment moves from the Department of Social Protection to the Department of the Environment.
  • It is made directly to landlords rather than to the tenant who heretofore was 'topping up' rent (illegally, but with little choice).
  • You can take up a job and still receive the support as it is means-tested.
  • It will integrate better the social housing lists, especially for the vast bulk of single people on them, and bring up the standards of rental properties at the lower end of the market, as it directly links those in receipt of the benefit to their local authority office.

Detractors say that it will allow local authorities to 'massage' the social housing list figures so they don't look so bad, but that's a political argument.

What it will do is take the onus off landlords to collect rent (and those pesky top-ups), and get them paid in advance rather than arrears.

That might make more of them take HAP tenants on and remove the dreadful discrimination that currently exists.

siryan@independent.ie

Indo Property

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