Home economics... answering your property questions
Our property expert advises on whether to invest in your pension or pay off some of your mortgage, as well as advice on a valuation offer from Permanent TSB.
I have been bequeathed €10,000 from my grandmother's will and I would like to either pay it off my mortgage or put it into my pension. I owe €210,000 with 18 years left on a variable mortgage with Bank of Ireland. I am 39 years old and have a company pension, but I don't really know what is in it.
Sinead replies: Assuming a 4pc interest rate on the mortgage, your over-payment would reduce the term by one year and three months, but would really only shave the same amount off the capital.
Investing in a pension offers tax free growth and the same figure would accumulate to around €26,658 by age 65 according to Zurich who are pension specialists. However, you need to check with your company that they can facilitate this by way of an Additional Voluntary Contribution (AVC) and you also need to ensure that the €10,000 doesn't tip over that which is allowed for full tax relief in one year.
For a 39-year-old this is 20pc of 'Net Relevant Earnings'; however if you wait until next year, it climbs to 25pc. The scheme trustee will work this out for you (and the extra yearly pension that can be assumed as a result), but essentially you are limited by the amount you can contribute in any one year and it must be deemed to come from 'earned income' to generate tax relief.
An inheritance doesn't count, so Revenue will need to see that it comes from your 'salary' instead which of course, you can compensate by using the money indirectly. You have no inheritance tax liability on a sum of €10,000.
Separately, do try and find out what's in your pension - your company is obliged by law to update this information every year. Alternatively, speak to a broker about the best route.
Question: I have received a letter from Permanent TSB offering a revaluation on my house which they appear to pay for. They say it may reduce my repayments. Is there a catch, or has it something to do with my local property tax? I'm reluctant to let an estate agent value the house as I have no intention of moving and I don't want to have to give them financial information. I have a variable rate mortgage.
Sinead replies: I suppose banks only have themselves to blame if customers are suspicious when a good looking offer pops through the door. In PTSB's case though, I can happily say that there's no catch in the deal. In fact, I've had a number of queries about this, so this answer is for all, including the lady who stopped me in the supermarket last week about the same thing!
PTSB is writing to 70,000 customers about this product, called a Managed Variable Rate and is essentially, as you say, a revaluation of your property which, if found to have a better Loan to Value ratio (the difference between its value and the mortgage on it), than it did at the start, you could benefit from a lower interest rate. PTSB rates at 4.5pc are quite expensive, and the new rates will be from 3.7 - 4.3pc depending on what LTV you have.
The valuation is free, with agreed estate agents and there's no new credit assessment, so you don't have to disclose salary, bank statements etc. It should result in a minimum of 0.2pc reduction at any rate.
It has nothing to do with the property tax, although a revaluation might of itself help you calculate what's due to Revenue next time around.
The Ryan review
I'm not entirely sure of the logic of the banks appointing (and funding to the tune of €2m), the British charity StepChange to out-source its arrears management, aided and abetted by the Central Bank, which cannot regulate the entity since it has charitable status.
There's nothing wrong with them of course - they've been doing this kind of work for 20 years in the UK where they provide free debt management clinics and advice. However, we already have an excellent organisation which does just that here - MABS, the Money Advice and Budgeting Service.
It has the added advantage of meeting clients face to face, rather than the 20 minute online session proposed by StepChange. The problem with arrears customers is they can be frightened and ostrich-like in their approach with banks. They ignore the letters, avoid the phone calls and are afraid to engage. Seeing a debt counsellor in a calm, one-to-one sit-down can (and does) make all the difference.
This is why places like MABS, and the Irish Mortgage Holders Organisation are successful. They de-stress customers who feel their house is going to be taken from under them and are bamboozled by the paperwork involved in a complex Standard Financial Statement.
Will they hop online to an anonymous outfit to get help? Or will it just provide banks with a tick box that they 'attempted' engagement with the customer and can now head straight to repossession quicker?