Mortgage Interest Relief extended for home-buyers until end of 2012
But the new government did pull a welcomed rabbit out of the hat on Budget Day last December when they surprisingly extended the MIR for home-buyers for another year.
Mortgage Interest Relief was meant to be ended as an option to all property buyers at the end of last year but the current administration appear to have recognised the importance of MIR to the property market.
First-time buyers who take out mortgages this year and draw down their mortgage before December 31st will be entitled to 25% relief on the interest paid. This is an increase from the rate proposed by the previous government (15%) making first-time homeowners even better off in a year when prices are keener still.
The rate of interest relief decreases every two to three years until it is finally phased out completely by the end of 2017. Thus, a first-time buyer will get 25% back in the first two years. This figure reduces to 22.5% in years three, four and five and down to 20% in years six and seven. For non-first-time buyers, the rate is a flat 15%.
On top of that, the government made another change to the system in order to try to lessen the burden on those were unfortunate to have become first-time buyers during the height of the property boom by extending a certain amount of MIR to those who had bought between 2004 and 2008. This figure is 30% of interest; one which is surely welcome even in the most extreme of cases.
All of this is good news. It translates into a considerable amount of cash saved if you take out and draw down a mortgage in 2012 as opposed to letting it slide into 2013, when you get no Mortgage Interest Relief at all. Curiously, it’s a message that doesn’t seem to have been communicated as well as it might to the potential property owners in the Irish public.
“The problem, I think, for the consumer out there is that the information is quite poor on it.” So says Peter Magee, Director Head of Mortgages at nationwide franchise group Sherry Fitzgerald.
Where the message is getting through, it is having some impact, as Magee explains: “I had a client who rang me to say that they weren’t thinking about buying for the next two years, but when they saw that the MIR wasn’t going to finish up until the end of this year, they decided they were going to buy now because firstly, it was going to work out cheaper for them to buy now rather than rent and secondly, they thought that if they’re going to buy, then they might as well buy now and get the benefit of the interest relief because it’s good money to have.
“If you’re first-time buyers doing a mortgage of €250,000 and you’re taking a rate of 3.24%, you’ll be getting €168.75 back every month in interest relief, it’s a lot of money.”
It’s certainly not to be sniffed at and, as this is the extension of a scheme that was destined to be closed at the end of 2011, the likelihood of it being further extended at the end of 2012 is unlikely in the extreme. The reality is that it isn’t always possible for people to do that. The inability and/or unwillingness of banks to lend is still and issue, but it’s an improving situation: Statistical data recently released from the Irish Banking Federation has shown that the number of mortgages issued in the last quarter of 2011 is 3,856, valued at €639 million. This figure is down 31% on the same period of 2010.
THE trend, however, is arguably of much more significance and it is encouraging: the figure is up 7% on the previous quarter and it is the third quarter in succession that there has been an increase.
This has not happened since the boom-time year of 2005.
Many agents are reporting increased levels of activity that support the trend reported by the IBF: “One thing that we’ve noticed is that the amount of people viewing houses has gone up,” says Joan Henry, Director at international property group Savills. “There’s been an increase of almost 25% in January and February alone. I would class that as being a leading indicator.”
“We’re 25% up on viewings compared to the same time last year,” says Sheila O’Flynn of Sherry Fitzgerald in Cork.
Whether or not the increase in activity is a factor of the extension of the Mortgage Interest Relief or the fact that banks are lending a bit more or even a combination of both those factors is possible.
“It’s always a positive thing when such a scheme is extended. It was noticeable from our point of view that lending increased in the fourth quarter. The MIR isn’t always the first thing that people mention as being a deciding factor but it is important that it’s there and that it’s being extended.
Buyers are certainly taking advantage of the market at the moment and the first-time buyer is very active right now” Another issue that is playing on the minds of those considering buying a house this year is the realisation of the economic fact that the lower a market has dropped, the safer and more attractive an investment option it becomes. Or, as Joan Henry puts it: “Anyone buying in the market now is not going to be in negative equity; that’s certainly a positive.”
The recent introduction of new property taxes and levies, combined with increased Capital Tax rates of 30%, has increased the level of tax compliance and the necessity for tax planning for all taxpayers, both personal and corporate.
The reductions in inheritance tax exemption thresholds combined with the 30% Inheritance Tax rate, will trigger substantial tax liabilities . The reduced 2% stamp duty on property transfers together with the potential relief from Capital Gains Tax, on properties acquired and held for two years, should stimulate further activity in the property market from both a commercial perspective and also a tax planning perspective.
Advance planning ensures that valuable tax reliefs listed below are preserved, minimising taxation and business costs.
* Business and agricultural relief for Inheritance Tax purposes.
* Retirement relief for Capital Gains tax purposes.
* Use of corporate structures for professionals, including the medical profession, to reduce tax rates from 55% to 12.5%.
* Effective use of corporate structures and trusts to transfer assets and businesses.
* Use of corporate structures for tax efficient pension funding.
* Tax effective investment structures and products to maximise the after tax return for surplus funds and saving.
* Tax strategies and exit mechanisms for business disposals and retirement.
* The new Capital Gains Tax exemption for properties purchased and held for at least 7 years should trigger property investment opportunities.
* The recent reduction in Stamp Duty rates for transfer of commercial properties to 2% will make property transfers more financially viable.
Andrew Guerin Associates provides professional tax advice to ensure that ones taxation and financial affairs are structured to fully utilize all available tax reliefs, in order to minimize the tax costs and preserve asset values on businesses transferred to the next generation.
For a free consultation contact Andrew Guerin, CPA AITI at Andrew Guerin AssociatesE: andrew.guerin@aguerin.ie Web: www.aguerin.iePhone: 00 353-21-4840721
The rate of mortgage interest relief available to first time buyers is 25% in year 1 & 2. 22.5% in years 3, 4 & 5 & 20% for years 6 & 7. This is capped at a maximum interest of €10,000 for a single applicant or €20,000 for a joint applicant. This is provided the mortgage is drawn before the end of this year.
For example:
A couple taking out a mortgage of €300,000 on a variable rate of 3.95%. Interest in year 1 = €11,850. (€300,000 multiplied by 3.95% = €11,850)
€11,850 multiplied by 25% = €2962.50. (maximum allowance for year 1)
€2962.50 divided by 12 = €246.87 (amount due to the applicants in mortgage interest relief each month)
Mortgages taken out after the 31st of December 2012 will not qualify for mortgage interest relief.
Mortgage interest relief will be completely abolished at the end
of 2017.
Non-first-time buyers in 2012 will get mortgage interest relief at a rate of 15% from 2012 until 2017
A special rate of 30% for the tax years 2012 to 2017 is being introduced for first-time buyers who bought their sole or main residence for the first time in the years 2004 to 2008 or paid their first mortgage interest payment in this period.
Source: Hawkesworth & Co. Financial Services.
The best thing about the market at present is that first time buyers have the ability to buy into areas they would never have been able to buy first time around.
The first time buyer of today won't need a property Ladder, a 4 bed detached property with garage, for Example, can be secured on the Rochestown Rd in Cork for €250,000.
To rent that particular property will cost €1,000 per month and rising, with no security of tenure or ability to make it your own. To buy this same property, as a couple borrowing 92% (still available) over 35 years will cost you gross €916.25 per month 3.24% Variable Rate 3.29% APR. Subtract the Tax Relief at Source available to a couple and the repayment drops to €757.80 per month.
TRS will not be here next year for first time buyers, a typical property purchase from deposit to receiving keys takes 3 months average, thus, anyone wanting to avail of this would want to start thinking of getting the appropriate documentation together in order to start the application process of getting a mortgage.
For Further Details:DNG Creedon, Village Green House, Douglas www.dngcreedon.iewww.douglasmortgage.ieTel 021-4897300
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