Monday 19 March 2018

Home economics: Sinead Ryan answers your property questions


Moratoriums can prove expensive
Moratoriums can prove expensive
Sinead Ryan

Sinead Ryan

Q: I am looking to pay off an educational and kitchen loan I have by taking a six- month moratorium on my mortgage. It will cost me an additional €30 on my mortgage every month afterwards but would save me €300 per month on these loans and give me breathing space. Is this a wise decision and are there any implications that the bank is not telling me like whether it will affect my credit rating or issues with switching mortgage to a different bank at a later date?

A: I can see the attraction, but I'm generally not a fan of moratoriums.

They can be very expensive in the long term as the pay back is a lot longer than the original loan may have been.

Of course, you're probably not actually saving anything, but simply deferring repayments with added interest. Therefore, you need to work out whether the long term pain is worth the short term gain.

To find out how, ask the bank to clarify what the 'total extra cost' will be over the entire term, rather than just per month (or work it out yourself based on €30 x no. of months left, if it's a flat amount). So, let's say you have 10 years left, that's an additional cost of €3,600.

If that's more than the loan you're avoiding, you should reconsider. Perhaps your local credit union could offer you a consolidation loan on the same terms, without bothering your mortgage.

I'd be mindful of one other thing: if you have a tracker mortgage, your bank may consider this a re-structure and seek to switch you to a variable rate.

Obviously, this would be a terrible idea.

The moratorium may show up on your credit rating, but not necessarily as arrears since you're not defaulting on the payment.

You shouldn't have issues switching just because of it either unless it brings your loan to value ratio up which is unlikely.

Q: My wife and I are guardians to our granddaughter due to problems in her family home with alcohol abuse. She is now 15 and we are getting on. Her parents are unlikely to be in a position to provide for her in the future and we are anxious to, but due to family tensions want this to be a smooth process.

Is it possible to leave our house to our granddaughter and leave our daughter and her husband out of the Will? Can it be contested and what is the tax implication if any?

A: There are two issues here, legal and tax.

On the first, Susan Cosgrove of Cosgrove Gaynard Solicitors says, "A child has no automatic right to inherit; likewise there is no entitlement for your daughter's husband whatsoever.

"You are entitled to fully bequest your property to your granddaughter in your will and leave out your daughter and her husband".

The important thing is to make a will to state your wishes, which you should do without delay.

"Failing to do so, would mean your estate is automatically left to your daughter (and any other children you have).

"Technically an adult child can bring what is called a Section 117 application if they believe that their deceased parent failed to make proper provision for them during their lifetime. A S117 is very difficult to win however."

On the tax issue, grandchildren come under Category B in terms of the amount they can inherit tax free.

Currently, this is €32,500, with tax of 33pc payable on the balance.

As your house would be worth considerably more, this would leave her with a significant tax bill and she could be forced to sell the house to pay the bill.

Only an adopted child can receive the same inheritance as a natural child, which is €310,000.

The Ryan review

So, Irish mortgage holders are still getting fleeced.

The Central Bank tends to use more temperate language in its press releases, but that's pretty much the message in the latest published lending figures.

The average interest rate across all mortgages is 3.35pc. The equivalent euro area rate is 1.83pc.

It's hard to take any other message out of that, than we are being routinely stuffed by the banks, two of whom, you'll recall, remain in full ownership of the Irish state; one other in majority ownership and a fourth in partial state care.

A cohort of foreign lenders make up the rest.

The likes of KBC, Ulster, Pepper and the sub-prime providers are, of course, allowed charge what they like in the different countries in which they operate.

Whether 'Irish' banks, especially nationalised ones, should has been the subject of some debate with Fianna Fáil - in particular - jumping on the populist band-wagon to demand interest rates be capped.

This won't happen. Finance Minister Paschal Donohoe has but one job after he balances the books: to offload the damn banks, and Rule 101 says you don't sell an asset by curtailing its profit-making ability.

So, we continue to pick up the tab until the job's done.

Indo Property

Business Newsletter

Read the leading stories from the world of Business.

Also in Business