Stamp duty for first-time home buyers a ‘national scandal’

THE decision by the Revenue Commissioners that first-time home buyers whose parents pay some of the price are liable for stamp duty will cause huge hardship, according to the Consumers Association of Ireland.

Dermot Jewell, chief executive of the association, described as “a step backward” the announcement by Revenue that buyers whose parents provide part of the purchase price of a house would have to pay the duty.

However, Mr Jewell said major responsibility lay with mortgage lenders as it appeared they were lending to first-time buyers who clearly did not have the ability to repay the loan.

“It is an unfair disadvantage on people who require some assistance, but it also raises the issue of whether lenders are applying a proper standardised test on the ability of the borrower to repay the mortgage.”

Mortgage lenders increasingly require parental support for mortgage applications. While a straightforward gift of money or acting as guarantor of the loan will not lead to payment of stamp duty, becoming a party to the mortgage does.

In guidelines issued to solicitors, the Revenue stated: “To qualify for the relief, the entirety of the purchase monies, including any borrowings, must be provided by the first-time buyer.”

The loss of stamp duty relief will affect most severely those who are on low incomes or whose parents are not able to provide an outright cash gift to help them buy a home.

“In fairness to the Revenue, there are probably case histories that have brought about this decision,” said Mr Jewell. “But mortgage lenders have a question to answer. Is it a case that they are demanding that parents become a party to the mortgage when the proper course should be to decline the application? In other words, they are replacing borrowers who cannot really afford the mortgage with those who can and, consequently, the first-time buyer loses out.”

Figures from the industry indicate such co-lending arrangements account for 10% of lending to first-time buyers. On the basis of the €227,321 average price paid by a first-time buyer, according to the most recent Permanent TSB/ESRI house price survey, stamp duty could amount to more than €9,000.

In a statement last evening, the Revenue Commissioners said there was no “clampdown” on their part and “nothing new in the way Revenue applies the legislation - which was always intended to limit the relief to genuine, first-time buyers”. The statement added: “Any person who provides part of the purchase monies or who is a party to any borrowings relating to such purchase is also regarded as a buyer of the house and the relief will not be available unless that other person is also a first-time buyer.”

William Lavelle of the National Youth Council said the situation was a “national scandal” and that young people were the ones suffering. “Here we have a situation where your parents cannot help you, yet the Government is not helping either and, in fact, they have abolished the home buyer’s grant. It’s a disgrace.”

Helen’s story

ONE young woman who bought a house with her father’s help could now face a bill for an extra €12,000 in stamp duty.

“I simply don’t have it,” said Helen Gahan, a primary school teacher from Co Meath. “I am 23, a single person and there is no way I could afford to buy a house on my own.”

Ms Gahan, who paid €270,000 for her house, has her father’s name on the mortgage deed and, according to the Revenue, this is exactly the scenario that attracts stamp duty.

“This is my second year teaching and the bank said they could loan me five times my annual salary, but there was still €100,000 in the difference between five times my salary and the 92% mortgage the bank were willing to give me.”

Ms Gahan told Joe Duffy on RTÉ radio yesterday that she had to take three part-time jobs on top of her teaching post just to make ends meet.

“Admittedly, some of them, like babysitting, are very part-time but I am also working in a shop. I have to meet my mortgage payments.”