Saturday 18 November 2017

A gift of €20k from parents is only way to afford a house

Some children are getting much as €150k to secure mortgage on properties around city

'Property insiders have also issued a new warning, that home ownership is likely to become the preserve of those lucky enough to have parents who can afford to offer some form of financial help to the younger generation' (stock photo)
'Property insiders have also issued a new warning, that home ownership is likely to become the preserve of those lucky enough to have parents who can afford to offer some form of financial help to the younger generation' (stock photo)
Mark O'Regan

Mark O'Regan

The 'Bank of Mum and Dad' is now the vital lifeline for many first-time buyers - with some well-heeled parents gifting up to €150,000 to help their offspring get a foot on the property ladder.

However, the typical "dig-out figure" is between €20,000 and €30,000, according to experts.

Property insiders have also issued a new warning, that home ownership is likely to become the preserve of those lucky enough to have parents who can afford to offer some form of financial help to the younger generation.

One of the main problems is that in many urban areas - particularly Dublin and the main cities - most salaries are out of kilter with average housing costs which are on the rise again. Under the new Central Bank rules, first-time buyers now only need a deposit worth 10pc of a property, regardless of its price. The 20pc deposit rule continues to apply to second-time and subsequent buyers - and the 3.5 times ceiling on loan to income ratio also remains.

However, Eoin McGee, principal of Prosperous Financial Planning, says despite this easing of the guidelines, parental support remains a key factor for many when it comes to landing a mortgage.

"It wouldn't be unusual to see people getting gifts of up to €50,000. But what people don't realise is the tax implications involved," he warned. He said the revenue authorities have been very clear. Gifts of this nature between parents and offspring must be taken into account when estimating the total tax-free sum children are allowed to receive in their lifetime.

"But for a lot of people -unless their parents can give them some financial help - it's going to be very difficult to buy a property above a certain price. It takes nine years now for a typical couple to save a deposit for an average house in Dublin. If you're not saving for a home by the time you're about 21, you are unlikely to be able to buy in your 20s," McGee told the Sunday Independent.

He highlighted a recent report published by the Institute of Fiscal Studies in the UK, which concluded the "rich are getting richer", due to generational trends in the property market.

He believes a similar situation is developing in Ireland, with the ability to purchase a home overly dependent on parental wealth. A potential borrower must be either "extremely disciplined" with their savings from an early age or in receipt of parental financial assistance - otherwise they face being locked out of the mortgage market.

Meanwhile, Michael Dowling, a financial adviser and chair of the mortgage committee at the Irish Brokers' Association, said at least one third of all prospective first- time buyers are in receipt of a financial "gift".

"A number of bodies carried out a recent survey last August, that showed that over 40pc of buyers expect some support from a family member. I have seen gifts of €5,000, and at the higher end I've seen cases of between €100,000 to €150,000. The average is probably between €20,000 and €30,000," he said.

Separately, new rules cracking down on parents gifting property to their children without paying inheritance tax recently came into force.

Under the prior exemption, a child could be gifted ownership of a property without having to pay inheritance tax as long as they lived in the property for three years before the gift or inheritance was made and for a further six years afterwards. That expanded so that a non relation could also avail of the exemption.

Now, however, strict new rules mean that the exemption will only apply to relatives inheriting homes - and only if they are permanently unable to provide for themselves by virtue of a physical or mental infirmity - or over the age of 65.

Sunday Independent

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