Home economics: answering your property questions
Our property expert advises on how the difficulties in extricating yourself as guarantor of a loan and on whether or not you can avail of the Rent A Room scheme for your children.
Question: I went as guarantor on my brother-in-law's mortgage in 2014 as the bank insisted on one for the first few years, and my wife (his sister) pressed me to do so. He has recently missed two payments which the lender has contacted me about. My brother in law says it's a 'mistake' and he's clearing it up, but I'm concerned about a wider issue and my liability. How do I detach myself from this arrangement?
Sinead replies: Guarantors were often put in place as a belt-and-braces approach by banks, providing an extra level of security in the event that the loan wobbled. The contract has a clause indicating your willingness to be the back up option in the event of default. Firstly, of course your brother-in-law may be right, and the whole thing will be sorted out.
But your tone indicates that even if this is so, you would prefer to extricate yourself, however this is not straightforward. Susan Cosgrove of Cosgrove Gaynard Solicitors explains: "Generally speaking such bank guarantees are unlimited i.e., not limited in time or to a lesser amount than the mortgage unless that has been negotiated with them. Assuming the guarantee is fully enforceable (I would recommend you have someone review it on this point) you are unfortunately fully liable for the debt of your brother-in-law. As he has now established a number of years payments they may be willing to renegotiate terms and allow you to be removed as guarantor, however it really depends on circumstances.
The courts have found that certain actions can nullify a guarantee, such as altering the terms of the loan contract. There are also certain legislative terms that can be used to avoid liability under a guarantee but they are limited and it really depends on the circumstances".
I think your best course of action is to explain to your brother-in-law that you no longer wish to act as guarantor and set about getting legal advice on removing yourself from the contract. This may have ramifications for him, and indeed, cause some family upset, but do question your moral duty to 'mind' him for this financial burden.
Question: I read an answer you recently gave on the Rent a Room scheme which allows tax free rental income for letting a room in your house. It sounds very worthwhile and I wonder would it work in my case. My son is returning from Germany after working there for a few years. He needs two rooms - somewhere to sleep and somewhere to work as he will be self-employed for a period of time. If I rent him both rooms, does it qualify as one or two? He will be paying me rent of around €500 per month plus some utility expenses.
Sinead replies: The Rent-a-room scheme is intended to provide additional accommodation in the crowded rental market by utilising 'spare' rooms in houses for the wider public. Under it, a home owner can receive up to €12,000 p.a. tax free without having to register as a Landlord. However, Revenue has a couple of stipulations, and exceptions, where it cannot be used. The first is for transient accommodation (like Airbnb for instance, where it's on an occasional night basis for tourists), and the other, unfortunately, applies to children of the home owner.
They say, "You cannot avail of rent-a-room relief in respect of payments for accommodation in the family home by your child or your civil partner's child regardless of whether or not the child has claimed tax relief on the rent paid. There is no restriction where rent is paid by other family members, for example, nieces and nephews".
The Ryan review
It's election day, so if this column were being broadcast there'd be a moratorium on it; however perhaps the ban should also apply to outlandish claims being made in political manifestos regarding solving the housing crisis.
Sinn Fein wants to build 100,000 houses while abolishing property tax (a ludicrous position for a socialist party which claims to want to tax wealth!), while Fine Gael is going one better with 125,000 new homes over the next five years (although they have failed to get any developers excited about the prospect so far) and Fianna Fail wins the hyperbole prize with 150,000 brand new homes allegedly on the way. Labour at least has the merit of fitting the lot into tidy shoe-boxes, given the new squidgy apartment sizes introduced by Minister (until today at any rate), Alan Kelly.
The main problem is that there is so much catch-up to do in housing, particularly in Dublin, that the solution is virtually over-whelming. Even if everything was built to order, there is precious little credit available with which to buy. Sinn Fein and Fianna Fail both claim they will introduce measures to limit the variable interest rates banks charge, but Michael Noonan, who was actually in a position to wield the big stick found everyone except State owned AIB quietly ignored him.
Quite what hold the other parties believe they will have over the private, mainly foreign owned banks is anybody's guess.