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14 Mar 2017

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First time buyers were among the Budget 2017 winners with the announcement of a new tax rebate that could save them up to €20,000 on the purchase of a new home.

The Help to Buy incentive applies to first time buyers who are buying a newly built home with a value of up to €500,000. Initially, this upper limit was set at €600,000, but this was amended down to €500,000. But if you signed a contract to buy a property (or drew down the first tranche of the mortgage for a self-build) between 19 July 2016 and 31 December 2016, you may qualify for the Help to Buy incentive on a property costing up to €600,000.

With effect from 1 January 2017, the Help to Buy scheme only applies to properties costing €500,000 or less.

The incentive will also be available to first time buyer self builds.

Speaking in the Dail, Minister for Finance Michael Noonan said the initiative will make it easier for first time buyers to meet Central Bank regulations on minimum mortgage deposits. It’s also hoped it will kick start the construction of more new houses.

How much can you save with the Help to Buy incentive?

How will the rebate help you buy a house? If you are a first time buyer you can get a 5% tax rebate on the first €400,000 of a new house valued up to up to €500,000 (or €600,000 if you signed a contract to buy a property (or drew down the first tranche of the mortgage for a self-build) between 19 July 2016 and 31 December 2016.

So that’s a maximum of €20,000. The rebate will be based on income tax paid over the previous four years.

The incentive will be backdated to include contracts signed on or since July 19th 2016 and first time buyers can avail of the rebate until December 31st, 2019. That gives you just over three years to claim a potential €20,000 in savings.

Who qualifies for the Help to Buy incentive?

The rebate is not available to first time buyers who are buying a second hand home.

Anyone buying a house valued in excess of €500,000 (or €600,000 if it was during the six-month exemption period) will not qualify.

It is also not available to second time buyers.

There are some additional conditions related to the rebate. You need to live in the house for at least five years or the Revenue can clawback the rebate. They can also seek a refund if a seller does not complete a property within two years of the rebate being issued.

Initially, the Help to Buy scheme required that first time buyers borrow at least 80% of the price of the home. However, as the Central Bank pointed out, the average mortgage loan for first time buyers is 78% of the Loan to Value (LTV).

Rather than make people borrow more than they needed, the minimum LTV was subsequently dropped to 70% in an amendment to the Finance Bill. For self-builds, the mortgage must now be a minimum of 70% of the valuation provided by EBS. *

The tax rebate will be based on the income tax and DIRT paid by a buyer in the previous four years. Obviously, this means that you can only claim back whatever tax you paid during this time.

How do I claim a tax rebate?

The Revenue will launch a new online system on January 3rd, 2017, and applications can be made after that date. If you want to avail of the incentive, you will need to make an online application, followed by a Claim for Rebate.

You can apply to the Revenue prior to choosing a house. You’ll need to provide your tax returns for the previous four years, even if you’re a PAYE worker.

The Revenue will tell you the maximum amount you can claim in a tax rebate. You can then use this information when negotiating your mortgage with your lender.

Once you choose to buy a home and decide to make a claim, you’ll need to provide the Revenue with all the details of the property and the transaction. Once this information has been approved, the Revenue will confirm the details of the sale with the contractor or developer.

Your tax rebate can be included as part of your mortgage deposit by your lender when you’re negotiating your mortgage. The Revenue then pays the rebate directly to the contractor or developer, and you will be required to make up the difference.

If you’re building your own house, your solicitor will confirm the value of the house to the Revenue and the rebate will be issued to you directly (into your bank account), following the drawdown of the first tranche of your mortgage.

If you bought a new home between July 19th, 2016, and December 31st, 2016, you can retroactively claim your tax rebate once the system comes online in 2017. You’ll then receive a direct payment, providing you meet all the conditions.

Why are second-hand houses not included?

Second-hand houses will not be included in the scheme as the Minister said this would not increase the supply of new houses. However, there was some good news in relation to the Home Renovation Incentive Scheme in the Budget. This scheme was extended by two years and homeowners who carry out home improvements can now avail of it until the end of 2018.

The new Help to Buy scheme will form part of the Housing Action Plan that was announced by Minister Simon Coveney earlier this year to tackle the shortage of housing stock throughout the country. One of the primary aims of the plan was to stimulate the building industry in Ireland and increase the number of new homes coming onto the market.

In 2015, 24% of house purchases were made by first time buyers but only 2% of them were new builds. The hope is that the interest this initiative will create among first time buyers will encourage the construction industry to provide more new affordable homes to meet the demand.

Thinking of buying your first home?

With the new tax rebate only available until the end of 2019, there’s no better time to see whether you could be eligible for a mortgage. If you’re thinking of buying/building your own home and want to know how much you can afford to borrow, why not book a mortgage meeting with one of our mortgage experts. Don’t forget to visit our Facebook page for the latest home inspiration, news and great competitions.

EBS d.a.c. is regulated by the Central Bank of Ireland.

The content of this blog is expressed in broad terms and is limited to general information purposes only. Readers should always seek professional advice to address issues arising in specific contexts and not seek to rely on the information in this blog which does not constitute any form of advice or recommendation by EBS d.a.c.

Want to know more about our 2% Back in Cash mortgage offer?

EBS' mortgage Back in Cash offer gives you 2% of the value of your mortgage Back in Cash, if you’re a first time buyer, mover, or switching your mortgage to EBS.

*From 1st January 2017 first-time buyers can borrow up to 90% of a value of a home.

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