Wednesday 11 December 2019

Your Questions: Will keeping apartment hinder our chances of getting a mortgage?


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Charlie Weston

Charlie Weston

Question: I bought a two-bed apartment in 2006 in Dublin with a friend for €375,000. Since then, we have both met our partners and had children, and I have been living in rented accommodation with my family because the negative equity in the property meant that we were unable to sell. Now, the value of the property is finally on a par with what is outstanding on the mortgage, which means we are in a position to sell if we wish. My friend, who now lives elsewhere, thinks it might be worth keeping it as an investment. My wife and I plan to buy our home next year, and I am not sure if having this will work for or against us with the banks?

Answer: As you will already know, there are many financial, practical and regulatory responsibilities attached to being a landlord.

So you must ask yourself if you are happy to continue in that role, according to the chairman of the Association of Irish Mortgage Advisors, Trevor Grant.

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The figures will be important in this decision. How much are you currently getting out of the property in terms of rent? How much are you paying on the mortgage? Will there be an opportunity for rental income to grow? Are there losses or other expenditures that can offset any tax bill that may arise? Crucially, from a borrowing perspective, it is likely that retaining the property could have a negative impact on your borrowing capacity, Mr Grant said. This is because all lenders will factor in the full debt outstanding into their assessment of the loan available to you. So this is something you and your wife will need to think about carefully.

Question: I am a self-employed plumber and I had an accident on the job a couple of weeks back, which saw me spend a few days in hospital. I am now going to be on crutches for six weeks at least. With all that is going on, I did not have my tax filing stuff in order this year, so I missed the November 12 deadline. I was going to just sort it all out when I am off the crutches and back to normal. Now that I have missed the deadline, it probably doesn't matter if I am a few more weeks late, or does it?

Answer: The good news for you is that the deadline has been extended until tomorrow night, so you have some added time. Potential surcharges for late filing increase from 5pc of the amount of tax due to 10pc, if the return is filed over two months past deadline.

Late payment interest could also apply, according to the CEO of Taxback.com, Joanna Murphy.

Her advice is to try to get your tax affairs in order as soon as possible, although it may be inconvenient.

Ms Murphy said Revenue is fastidious when it comes to self-assessed taxpayers filing tax returns, and the late filing surcharge is automatically applied by ROS (Revenue Online Service). But Ms Murphy also pointed out that Revenue is not an unreasonable entity. The policy is always to communicate with the taxpayer to resolve any situation. You should either contact Revenue directly or ask whoever handles your tax affairs to do so, to explain your situation.

Question: As a contract worker, my income varies. I am taking out a mortgage next month, and I am at a loss as to whether I should go for a variable or fixed rate. Then there is the question of how long should I fix for? Do we have any sense of the way rates are going to go? Will Brexit have an impact?

Answer: Without knowing more about your specific situation, it would appear that given your concerns and based on you being comfortable with the level of monthly repayments for as long as possible, a fixed rate would likely be most appropriate.

Fixed-rate mortgages offer security to borrowers, as they know how long their monthly repayments will be fixed for, according to Mr Grant.

Because your income may vary on a quarterly basis, it is worth giving serious consideration to this option.

The term of the fixed rate is dependent on your personal circumstances and requirements.

When looking at lenders, it would be worth assessing which of them would allow you to overpay on your mortgage without a penalty, because if you earn substantially more in one period, then you may wish to use this to reduce your mortgage balance, Mr Grant said.

While it is generally accepted that rates should remain low for the next few years, it is impossible to determine the impact of Brexit, so there's not really any way of factoring this into your decision.

Retaining an investment property could have a negative impact on your borrowing capacity because lenders will assess your overall outstanding debt.

Potential surcharges for late filing of income tax returns rise from 5pc to 10pc of the tax due, if the tax return is filed more than two months after the deadline.

Irish Independent

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