Monday 23 October 2017

Rates cut worry raises pressure for loan swaps

I'm really annoyed my bank is one of those which didn't pass on the last interest rate drop from the ECB. I have a variable rate loan and repayments are really high. What are the chances of further rate cuts not being passed on and could I change lender?

At its January meeting the ECB decided to keep interest rates at a historically low 1pc. However, the previous drop at the end of 2011 led to a flurry of confusion in banks. Some stepped up to the plate; others had to be dragged kicking and screaming (that's you, AIB). Bank of Ireland, Ulster Bank and NIB proved immutable and didn't pass on the cut.

The banks are shoring up loss making trackers and are using their only weapon: variable rate customers. They argue that passing on cuts would leave a bigger hole in their balance sheets. The two foreign banks are not covered by the State guarantee or bailout and are not dependent on the ECB for funding. Bank of Ireland is in a tenuous position, as it has received bailout money.

Your chances of switching are slim, but if you have a low loan to value ratio and get a valuation, asset statement and other paperwork, you could shop around. AIB now has the cheapest variable rates on the market.

There is the possibility of another rate cut in February -- I imagine the three banks above will stick to their guns although come under considerable political pressure. The others will plead poverty, but probably won't have a choice.

My husband and I have the opportunity to live abroad for a year which we've always wanted to do. One of our children has offered to rent our home while we're gone "for tax reasons", but I wonder whether it wouldn't be better if we got a non-family tenant? If we stayed abroad and sold our house, what would the tax position be?

You have two issues here, the income tax you'll be paying on the rent you receive and the tax on your home if you sell it.

First, it makes no difference who your tenant is from a tax viewpoint and you may prefer a family member. Your adult child cannot, however, claim rent-a-room tax relief.

Brian Solan of Solan Associates says, "You will pay tax on the rent. Expenses of letting are allowed including 75pc of mortgage interest but only where the property has been registered with the PRTB. If you cease to be resident in Ireland for tax purposes, withholding tax at 20pc must be deducted off the gross rent and paid to Revenue by the tenant."

Secondly, if you choose to sell, the house ceases to be your Principal Private Residence after a year when you will be liable to capital gains tax at 30pc. Solan adds: "There is a CGT allowance for the portion of time the house was a principal private residence plus 1 year."

Once you decide what to do, get advice from a tax consultant or financial adviser to make sure you're not paying more than you should. Best of luck with your trip.

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