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Monday 16 July 2018

BoI bringing back mortgage top-ups to avail of tax break

Aideen Sheehan

Aideen Sheehan

HOUSEHOLDERS will be able to get top-up mortgage loans from Bank of Ireland to help avail of the Government's new home renovation tax break.

Bank of Ireland (BoI) has launched a €75m fund to allow people to borrow for home improvements, with both personal loans and mortgage top-ups available.

But homeowners on tracker rates who seek a top-up will have to go on to higher interest rates of around 4.5pc for the top-up portion of the loan.

They will not be able to extend favourable tracker rates, which are no longer available for new loans.

Mortgage top-ups were commonplace during the boom, but all but vanished in recent years.

BoI said the fund was in response to the new Home Renovations Tax Incentive Scheme introduced in the Budget, which allows a homeowner to claim back the VAT on home improvements costing between €5,000 and €30,000.

The government scheme will give consumers a tax credit worth up to €4,050 over two years, in a move aimed at stimulating spending and reinvigorating the construction industry.

Borrowers from the new BoI fund can choose whether to apply for a personal loan for up to 10 years or, if they already have a BoI mortgage, a top-up.

The interest rate on personal loans is currently 9.9pc, while for mortgages it's around 4.5pc, more than twice as high as many tracker mortgages.

Each application will be assessed independently – taking account of the existing equity in the house, the loan-to-value ratio, and the applicant's income.

A survey of repayment costs shows that a personal loan of €20,000 would cost over €6,000 more to repay over 10 years than a mortgage top-up because the interest rate is twice as high.

The repayments on a €20,000 mortgage top-up would be €207 per month, with the total interest bill adding up to €4,880 over 10 years. For a personal loan the monthly repayment would be €259, with interest adding up to €11,025 over 10 years.

Cutting the repayment term will reduce the total cost, with a five-year top-up mortgage bringing borrowing costs for this amount down to €2,375 – although the monthly repayments would be more onerous at €373.


BoI said it currently provides around four out of very 10 mortgages and the fund was in addition to their €2bn mortgage fund announced in July.

Its director of consumer banking Gavin Kelly said they believed the government scheme "will support economic growth and employment in the Irish construction sector in the coming years".

Irish Independent

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