Mortgage advice: How much deposit is required?

NEW HOMES special report: You would need a deposit of €30,000 for a home costing €300,000, but the Help-to-Buy scheme helps reduce that minimum deposit

Under the Help-to-Buy scheme, borrowers are entitled to a tax rebate of up to 10% of the purchase price of the house (up to a maximum amount of €30,000) under the scheme which runs until the end of 2020.

You will need a minimum amount of 10% of the price of your home and a higher deposit amount will get you a better mortgage rate.

The recently enhanced Help-to-Buy scheme (HTB) also has the benefit of being able to effectively reduce the minimum deposit amount required with most lenders now – a point to check with your lender. Borrowers are entitled to a tax rebate of up to 10% of the purchase price of the house (up to a maximum amount of €30,000) under the scheme which runs until the end of 2020.

In practical terms, therefore, you would need a deposit of €30,000 for a home costing €300,000 but as a first-time-buyer availing of the HTB, that amount can be reduced and the normal practice for lenders is to do so, taking into account the sum of the tax rebate. Once again, it’s a case of talking to your lender about this.

The table below offers examples of repayments from a number of lenders in the current Irish mortgage market at different fixed rates, based on the example of someone buying a home for €300,000 and providing a 10% deposit of €30,000. If you have a larger deposit and/or you open a current account with certain banks, you will get better rates again.

Which is the best rate to choose?

The short answer to that question is “The best one” but it depends on which rate is best for you.

One can divide rates into two broad types – fixed rates and variable rates. Traditionally speaking, variable rates would be lower. A variable rate can increase and therefore increase your monthly repayments so if you’re taking on that risk, then the bank will offer you a lower rate. 

That’s how it used to be but we’ve been living in an era of historically low-interest rates now for about a decade so you’ll find that fixed rates of two to three years are the ones where the best value is usually to be found. 

If you want to fix your rates beyond that, it will usually mean paying a higher monthly repayment but the trade-off is the security of knowing what your repayments are going to be over an extended period of time.

Mortgage matters: Are there any additional costs to consider?

Yes, you need to budget for a number of additional costs, including the following:

Surveyor’s Fees: At a cost in the region of €300, this is common practice but not legally required but you will be advised by your solicitor to have a structural assessment of your new home carried.

Life Assurance: The cost of this can vary to a huge extent, like so many insurance products today. The thing to do is to shop around and budget for roughly €250-€300 per annum. It’s a legal requirement to have cover to repay the remainder of your mortgage and you can enhance it to cover other eventualities too, such as Serious Illness Cover or Income Protection.

Valuation Fee: Costing about €170, it’s one of those bills associated with home purchase that many people overlook amidst a long list of bills. Before the final cheque is released by your lender, they’ll need an independent valuation of the property, so there’s no getting away from it.

Stamp Duty: In the recent past, this used to be a very large bill. Nowadays, it has been reduced to a level of 1% of the price of any property up to the value of €1,000,000. If you’re buying something above the million mark, there is an additional rate of 2% to pay on the amount that exceeds €1 million.

Solicitor’s Fees: The process of buying a home is often the first time that people will need to engage the services of a solicitor. It’s a relatively straightforward process but it is important that it’s all done correctly and you need to have someone you can trust first and foremost and who will inform you at each stage of a journey that can often be frustrating. A €2,000 budget or thereabouts will normally cover legal costs.

Home Insurance: This is another bill where it pays to shop around. It’s also usually best from a practical point of view to organise all your insurance policies with one company. The main indicators that will dictate the insurance cost are the home’s value and its location. The cost should come in around €50/month.