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What does Budget 2021 mean for the property sector?

Was last week's Budget a giveaway to help first-time buyers and those trading up - or was it just a re-hash of schemes already in place? Financial expert Sinead Ryan examines the small print

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While first-time buyers and those with an interest in retrofitting did well, there was no relief given to hard-pressed mortgage holders struggling with repayments, those hoping to move on, or renters desperate for a place to live.

While first-time buyers and those with an interest in retrofitting did well, there was no relief given to hard-pressed mortgage holders struggling with repayments, those hoping to move on, or renters desperate for a place to live.

While first-time buyers and those with an interest in retrofitting did well, there was no relief given to hard-pressed mortgage holders struggling with repayments, those hoping to move on, or renters desperate for a place to live.

As the dust settles on Budget 2021, what will the new measures mean for buyers, sellers, owners and renters as they enter the ongoing uncertainty of 2021? While first-time buyers (FTBs) and those with an interest in retrofitting did well, there was no relief given to hard-pressed mortgage holders struggling with repayments, those hoping to move on, or renters desperate for a place to live.

First-time buyers win

For prospective first-time buyers, the extension of the improved Help-to-Buy (H2B) scheme was probably the most welcome step announced.

This heavily taxpayer-funded arrangement sees buyers or builders of new homes worth up to €500,000 getting their 10pc deposit handed to them, to a maximum of €30,000 via a tax rebate on their previous four years' income. This is a doubling of what had previously been available and was due to end this month. Instead, FTBs can avail of the enhancement until the end of next year.

The loan-to-value ratio on the mortgage must be at least 70pc but the Budget incentive has effectively brought back the equivalent of 100pc mortgages; a situation much decried during the boom.

Central Bank rules state that first-time buyers need a 10pc deposit in order to get a mortgage. However, with H2B this no longer has to be 'saved up' in the normal manner but simply applied for in the year the loan is drawn down. As long as the borrower has sufficient income to get a tax refund then they can effectively receive up to €30,000 to put down immediately.

It has been an enormous boon to prospective buyers who faced the prospect of years of saving at marginal interest rates up to now.

David Browne, head of New Homes at Savills Ireland, welcomed the move. "Construction delays due to Covid-19 restrictions have resulted in a significant drop in new home completions this year. This prevented thousands of would-be first-time buyers from getting on the property ladder through the Help-to-Buy scheme.

"We estimate between 25,000 and 30,000 new homes are required each year to meet demand. However, approximately 18,000 will be completed by the end of 2020. Assuming 2021 brings some level of normality back to the market, stock levels should be higher and therefore the extension of Help-to-Buy is welcome news - especially for those who missed out this year."

There is a about H2B, its detractors have pointed out. On the one hand Housing Minister Darragh O'Brien claims that new houses wouldn't be built without H2B underpinning developers' plans. However, the incentive itself is inflationary with some builders simply upping the price of new homes, knowing that buyers have their deposit handed to them.

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Eoin Ó Broin, housing spokesperson for Sinn Féin, says: "Forty per cent of those who have received the Help-to-Buy payment didn't need it as they already had a full deposit. Its main problem is that at worst it inflates house prices; at best it holds them at unaffordably high levels, which further locks thousands of first-time buyers out of the housing market."

Pat Davitt, of industry body IPAV, welcomed the extension of H2B but said it was a 'great pity' that the Budget didn't include second-hand homes in the grant, a move which, he claims, would make a "seismic difference at a very difficult juncture".

He said that new homes, even in rural Ireland, priced between €250,000 and €300,000, are already too expensive for young people on an average wage of €40.000 to 50,000.

"There are many areas throughout the country where second-hand properties are being sold for less than what it would cost to construct them. And it would cost young people less to service a mortgage, with its huge long-term benefits in terms of personal wealth, than paying rent," he said.


Vendors lose out

For those thinking of putting their house on the market in 2021, there was nothing in the Budget to assist them with plans to move on or up.

The expected slump in house prices due to the pandemic hasn't materialised (yet), and pent-up demand during lockdown has seen improved activity in the market since.

Those who planned to sell pre-Covid may now not be able to afford to trade-up, and may instead decide to stay put. Others, now working from home without their dreaded commute, may decide they don't need to move at all.

Still, others have realised that if decent broadband is in place, it hasn't mattered a whit where they live if their employer is happy for them to continue working remotely. As a result, there has been something of a resurgence in people moving 'back home' to rural towns and villages. They save on time and money.


Home Owners Get Tax lift

Homeowners got thrown a taxation sop in the form of a deduction for working from home (WFH). Workers can get tax relief on utility bills - now to include broadband - for use 'wholly and necessarily' in the execution of WFH duties. As things stand, they can already receive up to €3.20 per day tax-free if their employer pays this, but none is obliged to do so.

The continuing roll-out of the National Broadband Plan will see 122,000 rural homes and businesses getting high-speed services in 2021.

Mortgage holders still struggling financially won't get help in the form of a further pandemic payment break. Any restructures will now fall firmly into the Mortgage Arrears Resolution Process (MARP) and all it entails.

For those busily outfitting home offices, employers are permitted to dispense essential tools like printers and desks (and, at present, garden offices) without employees becoming liable for benefit in kind (BIK).

But if you see clients or you have deliveries at home then beware of a potential insurance issue - which you will need to notify your insurers about - and a potential Capital Gains Tax (CGT) bill if you sell your home at a later stage.

Technically, a home office does not form part of the 'principal private dwelling' and that back bedroom turned office may be considered a commercial space, attracting CGT of 33pc on its subsequent sale.


Investors Leave the market

Landlords are leaving the market in droves, according to the Irish Property Owners Association. Roughly 20pc left between 2012 and 2018 as tax changes and compliance measures made life more difficult.

Chairman Stephen Faughnan called last Tuesday's Budget "another series of missed opportunities", having called for the offsetting of all legitimate expenses in the year they occur to encourage owners who "want to play their part" to remain.

The collapse of tourism saw many Airbnb properties returning to the mainstream market for letting and sale, a Covid effect that has flattened, and in some cases depressed, rental incomes.


Retrofit for Eco homeowners

A €65m investment in the retrofitting of 2,400 social houses was described as 'limited and disappointing' by the Society of Chartered Surveyors Ireland (SCSI). A more expansive programme worth €300m had been flagged.

However, an apprenticeship scheme targeting 15,000 out-of-work young people was welcomed, as they will now be reskilled in retrofitting businesses.

Heat pumps for 500,000 homes are planned over the next decade, but numbers at present are only a fraction of that and many older houses are ill-suited to installing one.

There's likely to be another knock-on effect of the pandemic as those facing Covid-related income cuts will be less likely to stump up two-thirds of the price of insulation and solar panel costs in order to get a one-third grant.

A total of €109m is earmarked for the SEAIs Warmer Homes initiative, which gives free energy and insulation upgrades to low income households.


Social and Affordable Housing

A push to build public housing was (again) announced. This time the target is 9,500 new homes, a figure that was immediately demolished by the opposition.

The existing target for social homes in 2021 was already 8,900 but, again due to the pandemic, only a fraction will complete. The figure also includes rentals of private houses, not necessarily newly built state-owned housing.

This is partly due to Covid locking down the construction industry but total housing output, across both the public and private sector is just 17,000 units, according to the SCSI.

"Most commentators agree that we need to double this figure to meet demand. How then can we scale up housing output to meet these new targets? One key area which needs to be addressed is the system of public procurement. The current system is overly bureaucratic and unless it is overhauled we will continue to miss these targets", a spokesperson for the SCSI said.

A proposed 'shared equity' scheme for affordable housing has been mooted by Housing Minister Darragh O'Brien but the details are ambiguous. The gist is that a prospective buyer would effect a mortgage based on say, 70pc of the house price, with the local authority retaining ownership of the balance. At some future date when their circumstances improve the home-owner 'buys out' the council's share.

Quite how banks will react to having dual owners on a property over which they have a lien is not clear, however, and opponents say all it does is underline the lack of affordability of housing generally if such props are required to make them affordable.


Cold comfort for Generation rent

Renters will have received little comfort from the Budget. Although measures to ban evictions and rent increases remain until January 11 under new legislation it only applies for those whose incomes are materially affected by Covid. Rents dropped by just 0.6pc in the second quarter, standing at €1,226 nationally and €1,709 in Dublin.


Older homeowners Gain

Pensioners didn't get their annual fiver this year, but an increase in the fuel allowance of €3.50 will alleviate some of the carbon tax measures for those on low incomes. The living alone allowance also increased as did the allocation for home help hours as the pressure on acute hospital beds continues.

Nursing homes will get an extra €40m in funding, which is much needed as their particularly difficult battle with Covid-19 continues.

*****

The Irish property market is a rollercoaster at the best of times, and no government has managed to develop policies to get to grips with it sufficiently. Perhaps we're about to find out what happens when you do what the naysayers have long called for: throw money at it.


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