Wednesday 21 February 2018

House swap a cheaper option for moving on

Donal Buckley

Swapping homes makes increasing sense in this current market because mortgages can be so difficult to secure and also because existing homeowners are having difficulty selling in the current quiet market.

This market can prove even more difficult for those trading down compared to those trading up, so a swap can make more sense, especially if they are willing to consider moves to the most difficult segment of the market -- apartments.

The cuts in stamp duty have also meant that for the first time in decades, both parties who engage in a house swap are on a more even playing field when it comes to transaction taxes.

House exchange could also generate savings on some other aspects of transaction costs.

At a time when heavily indebted homeowners want to reduce their mortgage repayments to more manageable levels, exchanging homes can provide another solution to their problem.

It also allows a widow to move from a large country house whose upkeep is proving expensive to a townhouse, from where her children can walk to school.

When a property market is quiet, people are encouraged to think outside the box and find new ways to move to a location or house type that they require.

House swapping was stamped out by the revenue commissioners in the '90s because they saw it as evading stamp duty which was then a major revenue earner for the Government's coffers.

Prior to that, the party who was trading down did not have to pay stamp duty although the person trading up did -- but they only paid stamp duty on the price difference between the houses swapped.

When revenue stamped out this allowance, it meant that both parties who were buying secondhand homes would pay stamp duty at the normal rate. Furthermore, as house prices soared, such rates could be as high as 9pc in some cases.

While last December's Budget did not reinstate the old practice, it has made it easier and cheaper as, of course, the stamp duty rate is only 1pc.

Carlow-based estate agent Harry Sothern of Sothern Real Estate Alliance is an advocate of house swapping.

He has also recently come across an instance where a bank facilitated such a swap as its mortgage house holder was able to pay down some of the debt thanks to funds paid by the person trading up.

"Furthermore, the bank felt more comfortable with the new mortgage it was providing to the person trading down as their client would then manage to meet repayments and the smaller house was much more sellable, thus more likely to retain its value and provide better security for the bank," he explains.

Mr Sothern has for years called on the Government to implement changes to the rules on stamp duty to allow for greater mobility.

"Back in the 1980s and early 1990s, many agents organised house-swapping between interested parties," he said.

He believes that charging stamp duty only on the price difference between the houses swapped is an excellent arrangement.

For instance, it allows young families who want to move to a larger house in town or in the country to trade with an older couple looking for a more manageable property.

One of the difficulties in the current market is the uncertainty about selling or buying. For instance, some of those who want to trade up to a house they like in a neighbourhood they like are afraid to buy in case they may not sell their existing home.

For this reason, a number of people sell their existing house first and move into rental accommodation while they are shopping around for a home they would like.

However, they then get tied into a leases and may have to forfeit their rental deposit should they leave before their 12 months are up.

The stamp-duty savings for both parties in a swap are considerable compared to those that applied this time last year. Take the examples of those swapping a €200,000 home for a €400,000 home.

Previously at the 7pc stamp-duty rate, the buyer of the larger home would have paid €19,250 and the buyer of the smaller home €5,250 or a combined total of €24,500. Now with stamp duty cut to 1pc for both, the person trading up pays €4,000, the person trading down €2,000 or a combined total of only €6,000.

Harry Sothern says that when acting for both parties, he would halve his commission. While some solicitors might adopt a similar approach, it is advisable that both parties should still commission independent surveys and legal advice on the properties.

He also points out that it is more likely to work in local communities rather than among more far flung buyers and sellers.

"It's much more difficult to arrange where people are moving between places such as Carlow and Galway than it is when someone is moving within one area of Carlow to another or one area of Dublin to another part of Dublin.

So for the moment, we are unfortunately stuck with stamp duty as it is, but that doesn't mean we can't embrace house swapping.

Indo Property

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