Thursday 18 January 2018

Home economics: answering your property questions

A specialist mortgage broker could help with a negative equity mortgage
A specialist mortgage broker could help with a negative equity mortgage
Sinead Ryan

Sinead Ryan

Advice on our property expert on buying a family home from your father when and on negative equity loans.

Question: Our mother died earlier this year and Dad wants to sell the family home now.  It was their only asset and left to us children in their (now his) will. However, I would very much like to buy it as my family home; we need somewhere bigger and it has memories associated with it.  How will this affect the will and how do I compensate (if necessary) my siblings — there are two. I would ideally like to take my ‘inheritance’ now and buy at a third of a discount.

Answer: This query is really for your father, rather than you, as it is he making the decision to sell. He must be happy to do so to you, which I’m sure won’t be a problem. However, a valuation should be obtained to ascertain current market value.

Solicitor Susan Cosgrove of Cosgrove Gaynard says you won’t be compensating your siblings as it is still your father’s property, so funds on the sale will go to him, as seller. 

She adds: “If you are to obtain a discount on the purchase price to allow for your inheritance, your father will have to agree to accept a discounted amount and whether he is happy to do this now or instead would prefer to obtain the full value of the property and leave his estate in full to be divided upon his death.

If he does agree to the reduction, this portion will be deemed to be a gift. You do not mention the value of the property, however you should note that if it is over the current CAT threshold, which is currently €280,000 for a child, then a CAT liability will arise which is currently 33pc. You can of course take a gift of up to €280,000 and pay the balance of the market value. This in turn can be set off against your eventual inheritance.”

I’d add that it would be good for you and your siblings to get legal advice together before moving. 

Question: I’m trying to find out about negative equity loans and see if they apply to me. I have a house valued at €240,000 but need to trade up to a larger property as our family has grown. I have a variable rate loan from Bank of Ireland with 15 years left on it, however, the mortgage is just over €300,000. I want to gather information before approaching a bank; what do I need to know and how much can I borrow?

Answer: The good news is that Negative Equity (NE) mortgages are available from Bank of Ireland, so you can stay where you are. The bad news is that they’re pretty difficult to secure.

In principle they work no differently to a normal mortgage, in that your ‘loan to value’ (LTV) rate is the important bit, along with your ability to repay.

You are essentially carrying forward the negative part of the loan (the difference between the sale price and the current mortgage) – in your case, around €60,000 and stacking it on to a new mortgage. Bank of Ireland allows you to do this to a maximum of 175pc LTV overall, so you’d need to value the new trade up into this to see how much you could borrow. 

You need to have a minimum of 10pc of the new property purchase price (i.e, you can only borrow up to 90pc of the new house’s value). You could also extend out the term and this would reduce your monthly repayments, but cost more in the long term. You’ll be paying normal interest rates thereafter.

So, find out how much you need to borrow, working off the maximum allowable: the price of the new property (using 90pc of that), adding the €60,000 NE, and that’s your new mortgage. The LTV should drop to reflect the bigger house’s higher value and then approach your bank. 

You’ll need the usual documentation, but if it were me, I’d engage a specialist mortgage broker to walk you through it.

The Ryan review

It seems more and more ludicrous that the Government talks have centred on water for more than eight weeks.

It’s an issue which clearly raised voter ire, and for which we will be paying one way or another, whether it be directly or via increased general taxation and/or fines from the EU for having broken the water directive.

But for most of us, the issue of homelessness is far more pressing, especially in this, our centenary celebration.

Of course everyone is ‘calling’ on the new Government to put homelessness front and centre, but it would carry more weight if the marches, sit-ins, rowdy antics at the gates of Leinster house, which the water charges issue caused, appeared to back that up. IPAV, the auctioneers association, issued its cri de coeur recently, claiming the cost of finance is one of the key impediments for builders.

Many, especially the smaller operators, are finding they can only access credit from expensive equity funds and secondary sources, carrying interest rates up to 20pc, rather than the pillar retail banks — the ones the taxpayer kindly bailed out.

If we are being serious about home building, then Government finance has to be made available, via Nama or another vehicle. A far greater proportion must be social housing and the rest the sort families want to live in. As an added bonus, they all get to pay water charges then too.

Indo Property

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