Home Economics: Answering your property questions
Personal Finance expert Sinead Ryan answers your property questions.
Question: I am 69 and have a PRSA from which I've already taken the tax-free sum, leaving around €50,000. I have a tracker mortgage of €60,000 on a rental property, but my wife and I find ourselves squeezed on disposable income. Should we cash in the PRSA, pay €20,000 off the mortgage to reduce the payments or draw down a (taxed) monthly income from it instead?
A. This is about return. Is paying down the debt and freeing up monthly cash better than an instant lump sum? I asked Eoin McGee of Prosperous Financial Planning.
He says: "There are three scenarios in which it makes sense to pay down debt: (a) Clearing the mortgage completely (b) A very high interest rate stifling return (c) You are struggling with the monthly repayments
"There is not enough in the PRSA to make scenario (a) viable. On the interest, you don't say what you're paying, but let's assume 1.5pc as a tracker. You would need a gross return of 4.5pc per annum before this starts to make sense. Historically, a mixed portfolio comprising 60pc equities/40pc bonds would return 6.5pc per annum, but we are in a different position today and I prefer conservative growth expectations of 3.5-5.5pc gross.
"Sometimes, though, the last point is the most important. Even if something does not make financial sense, emotion can override it. If you have gone through your finances and you are happy that you are spending your money on the right things each month, then it may be worth reducing the repayments with a lump sum.
"Tax-wise, to take €20,000 net out of the PRSA means withdrawing €25,000-€40,000 (depending on your income-tax band). You will also be reducing the amount of interest you are paying on the mortgage but less interest to reduce your income tax bill.
"Have you considered selling the house, increasing the rent or talking to the bank about extending the term of the mortgage?
"Are you sure you are spending your money wisely?
"Have you got a professional to review your long term financials?
"Would a son or daughter be interested in buying part of the investment property from you?
"These are all things that would need to be factored into the decision you have to make."
Question: We have just bought a new (old) house which has a 'granny flat' annex in what would have been the original basement, but it has its own street entrance. It is in poor order and we plan to renovate it, then rent it out under the Rent-a-Room scheme. Does it qualify for this purpose as a 'room'? It's really not worth our while doing the renovations if it would be considered a separate property.
A. It should be fine. Revenue doesn't define 'room' for the purposes of the relief - which allows you earn up to €14,000 per annum tax-free in rental income - rather, it bases it on 'qualifying residence' under S216A of the Taxes Consolidation Act 1997.
They told me that it is a premises "situated in the State which is occupied by the individual as his/her sole or main residence during the year of assessment.
"In order to avail of Rent-a-Room relief, the room must be used for the purposes of residential accommodation, i.e. the occupant is using the room, either on its own or in conjunction with other parts of the residence, as a home.
"In general terms, the room or rooms can comprise a self-contained unit within the residence such as a basement flat or a converted garage attached to the residence." Good luck with the renovations.
The Ryan review
Soit turns out the vulture funds aren't the bad guys after all. Having, as Mr Noonan starkly described it, picked over the carcasses of the distressed property market, they want to cut and run, as they are wont to do.
They paid a pittance for bundles of mortgages - some good, many bad - and need to turn them over now before packing their suitcases. If they can get the incumbent resident to buy them back, and make 20pc on the deal, why not? After all, they only paid 40pc of the asset value. It's not personal - it's just business.
The likes of US giant Tanager offering people haircuts on their loans isn't new; it's exactly what equity funds do - if you can refinance your no-profit tracker elsewhere, we'll cut you a deal and take the reduced lump sum.
Cue the social commentators, who immediately whinge that our pillar banks, AIB and Bank of Ireland, aren't prepared to do the same.
Why should they? The argument seems to be along the lines of a 'moral duty'. Lolz … as the young people say.
With them, it is personal and would mean crystallising the loss publicly on their balance sheets. It's messy, expensive and embarrassing to cut deals with individual mortgagees; selling in bulk to a 'vulture' is cleaner, a gag clause adds secrecy.
Both are considering doing just that, so maybe the customers who can afford it won't have long to wait.