The tax relief scheme for first-time buyers ends on December 31st, so anyone who wants to avail of it will have to find a house – and finance – fast
WITH REPORTS that prices are levelling off in some areas and a temporary Government tax relief to cushion buyers for the first five years of their mortgage, maybe 2012 isn’t a bad time to buy.
But despite the generous relief, designed to kick-start the moribund property market, have other factors such as lack of stock and low lending rendered the scheme useless? And with the Government pulling up the drawbridge on the relief on December 31st, is that too soon?
“We’ve noticed a huge increase in first-time buyers wanting to buy prior to Christmas to avail of the scheme,” says estate agent Felicity Fox. Operating mainly in the Dublin 2, 4, 6 and 8 postcodes, she says that while the scheme has incentivised buyers, the problem is a lack houses. With those wanting to move on chained by negative equity, those wanting to move in are locked out.
For properties in the €200,000 to €400,000 bracket – typically those in the crosshairs of young professionals to whom the tax relief would mean most – a lack of good properties has made them unable to budge.
As the weeks tick down towards the end of the scheme, many are frustrated.
“In that price range, there is a huge increase in viewing and bids,” says Fox, “but I think everyone would agree that the driving force is that there is no supply. It’s well down on last year.
“These are young professionals who have been renting or living with their parents. In a few cases, we’ve had six to eight of them bidding for the same property.
Douglas Newman Good chief executive Keith Lowe says: “In year one, the scheme could mean €100 a month off their mortgage, which is a lot of money. We’ve seen a big upswing from first-time buyers all saying they need to have the contract signed by Christmas.”
He says the rush is particularly apparent in the starter-home enclaves of Lucan, Clondalkin, Tallaght and Palmerstown.
“There is a huge shortage and because of that, there is multiple bidding on nearly all of them,” says Lowe.
But the other problem preventing many new buyers from acting on the mortgage relief scheme is the banks.
“It all depends on your employment, how gilt-edged you are considered by the bank,” says Fox.
While first-time buyers in the IT or pharmaceutical sectors are getting loans of up to 92 per cent, she adds, their numbers are few.
“I think there is a huge divide. The self-employed may as well pack their bags . .. even barristers are having a terrible time trying to get across the line.”
Chief executive of the Irish Brokers Association Ciaran Phelan says while the mortgage interest relief scheme has been a good thing and he is calling for it to be extended, it’s not enough.
“An active property market underlies any economic recovery but at the moment there is not enough lending.”
A preponderance of cash buyers is also preventing many first-time buyers from getting over the line before December 31st says John O’Sullivan, director of residential sales at Lisney.
Whether it’s parents who cashed in at the peak of the boom and now have a lump sum to fund homes for their children, or others who sold well and are using the excess to buy, they are pipping mortgagees to the post.
“If you go to a client and say buyer A is borrowing money and for buyer B it’s a straight cash purchase – very often they go for the cash buyer,” says O’Sullivan.
But with just 11 weeks to go before the Government pulls the plug on the scheme, buyers with either cash or a mortgage now have a short window to seal the deal.
“Buyers would want to be getting in there now. A normal conveyance, with banking issues and red tape can take eight weeks,” says Felicity Fox.
Despite Minister for Finance Michael Noonan’s pronouncement on September 28th that there will be “no extension to this measure given the current budgetary position”, many believe that because low lending and lack of housing stock rendered it futile in 2012, he should rethink.
“The bank wanted to see complete savings with no withdrawals whatsoever “
FIRST TIME buyer Emmet Furlong (29) started house hunting in May.
“My boyfriend had been looking at some properties online. He found one in Dublin 8 very close to the Guinness Brewery so we went and had a look.
Working in software sales, he says calculators on the AIB and Bank of Ireland websites promised loans of up to €150,000.
Living in a great house-share in Stoneybatter for over four years, Furlong says he wanted more space.
“I cook a lot so I’d love to have more space for that, and be able to put up my photos and to have some outside space,” he says.
While the Dublin 8 property, on sale for €120,000 didnt impress, he decided to check in with his bank. He found them cautious.
Having always been employed, Furlong moved to his current role in software sales with a well-known global IT company, over a year ago.
“A certain proportion of my income is commission which is quite steady, but I was told unless I was in the job for two years and could show a pattern over the two years that my commission was steady, they wouldn’t take it into account, he says.
“The bank based what they would lend me on my basic salary which reduced what I thought I would have been able to borrow. They also wanted to see complete savings with no withdrawals whatsoever.”
On the €105,000 to €110,000 they said they would be prepared to offer Furlong down the line, repayments would have been just €280-€290 a month, far lower than his current rent of €380.
Under a stress test scenario of doubled interest rates, Furlong would be repaying €560 a month, a repayment he felt – based on his banking history – was clearly achieveable. “On top of my rent, they wanted to see an extra €200-€300 going in each month without being touched. I was already saving more than that, its just that I had gone in and touched it.
“Initially I was disappointed, considering the stress test amount came in so low. I thought if I can’t pay that, theres something wrong.
But Furlong is sanguine. “I’m not in a hurry, but it does mean I won’t be able to avail of this allowance.
“One thing I would say is while houses are cheap, there isn’t really a huge amount of them on the market.”
MORTGAGE INTEREST RELIEF 2012 EXTENSION: HOW DOES IT WORK?
INTEREST PAID on qualifying home loans taken out between January 1st and December 31st, 2012 qualifies for generous tax relief up to December 31st, 2017.
Those buying after January 1st 2013 will not qualify for tax relief.
First time buyers taking out a loan in 2012 will get mortgage interest relief at a rate of 25 per cent on ceilings of €10,000 a year for singles and €20,000 for married couples or those in civil partnerships. This gives a maximum relief in 2012 and 2013 of €2,500 for singles and €5,000 for those married or in a civil partnership. The relief then runs at 22.5 per cent from 2014 to 2016 and 20 per cent in 2017, when it stops.
Non-first-time-buyers in 2012 will continue to receive relief at a rate of 15 per cent on ceilings of €3,000 for singles and €6,000 for married couples/civil partnerships. This will give a maximum relief between 2012 and 2017 of €450 a year for singles and €900 for those married/in civil partnership.
The Minister for Finance, Michael Noonan, said last month: I want to again strongly emphasise that this mortgage interest relief measure will come to an end at the end of this year. There will be no extension to this measure given the current budgetary position. Furthermore, purchasers should make sure to factor in the time required between purchase and mortgage drawdown in order to qualify for mortgage interest relief so we are getting close to the time when the curtain comes down.
Read the full article in the Irish Times