14 Jul 2017
Buying your first home is a huge step. We know that. The process is long and you’ve saved more money than you ever have before for a deposit. Phew!
All first time buyers need 10 percent of their purchase price under the Central Bank rules, so with average prices of €251,500 for a new house in Ireland at the minute, that means savings of over €25,000.
That’s a chunk of change for most. But if you haven’t started, don’t panic. That’s where your local EBS Mortgage Master comes in. Our sole focus is on helping Irish people get their first home – it’s what gets us out of bed in the morning!
We’ve been helping Irish couples get their first homes since 1935, so we’re on your side. We’ll do everything we can to make it an easy journey – and with eight decades of mortgages behind us, we’ve picked up a few tricks of the trade along the way.
We always have our eye out for government relief schemes and free tools. The biggest one for first time buyers at the moment is the Help to Buy Scheme, which helps pay a lump of your deposit with a 5 percent tax rebate on the price of the home. A quick recap: The Help to Buy scheme only applies to new-build or self-build properties, up to a property value of €500,000. It includes all types of properties: apartments, duplexes and houses but they must be newly-built and the builder or developer must be registered with the scheme.
Now, as the title of this article suggests, we are coming at this from the point of view of a couple. The terms of the Help to Buy scheme are much the same for everybody, but there are a few wrinkles in there for couples so we’ll run through the basics for you right now.
First thing’s first – before applying for the Help to Buy scheme, you and your other half will need to know how much you can borrow as a couple. The Central Bank LTI (Loan to income) ratio states that banks can lend 3.5 times the income of the applicant (there’s room for movement in some cases, but this is up to the lender). Another important Central Bank rule states that first time buyers will need a minimum deposit of 10% of their house price.
If there’s two applicants then that’s 3.5 times the joint income. So let’s take an example of two first time buyers, Jen and Liam.
Jen earns €40,000 per year, and Liam earns €35,000. This means that they can apply for a mortgage of 3.5 times €75,000 – allowing a maximum mortgage of €262,500.
Now Jen and Liam will need to build a deposit of 10% of their house price, and this is where the Help to Buy scheme could come in to save the day. A mortgage of €262,500 will relate to a house price in the region of €292,000*. On a house costing €292,000, our couple would need a deposit of €29,200. But if they availed of a maximum tax rebate, they would only have to come up with €14,600.
It’s important to point out that these figures are only initial estimates, but having a knowledge of Central Bank rules and limits at an early stage will help Jen and Liam at the beginning of their mortgage journey, giving them a rough indication of their future house price and how much they could claw back from the Help to Buy scheme (if they qualified for the full 5% rebate, of course). They’ll also need to get the real figures from their lender – so it’s a good idea to get chatting to a Mortgage Master after this initial research.
Darling, I love when you recite your past tax payments. Before you both start dreaming about new builds and deposit relief, you’ll need to actually check that you qualify for the scheme. The rebate you can claim will depend on the amount of income tax and DIRT you’ve paid in the previous four years – which you can check on revenue.ie.
On the application, the five percent rebate is split between both applicants unless one of them have lived abroad, in which case the person who remained must have paid more than the rebate amount in tax over the previous four years. So if you are due a rebate of €16,000 then at least one of you must have paid more than €4000 in tax for the previous four years.
You’ll hear a lot of people saying that you get €20,000 of the price of your house back in cash. Now, there’s an element of truth to that, but that figure of €20,000 only applies to people who buy in the €400,000-€500,000 range.
For everybody else, you get five percent of the house price (or value), so if you buy a house for €250,000 then you’d get five percent of that back which would be €12,500.
We know it can be tough saving for a mortgage with someone else. Every couple has a different way of doing it, like setting up a joint savings account from the very first month, to splitting the bills 50/50, or even going down the pro-rata path (paying according to each ones means).
The Help to Buy scheme can seem like a massive relief for your joint saving efforts – and it is. But we have one big piece of advice for couple’s availing of the scheme; it’s important to check with your lender that your monthly savings and rent will still meet your repayment capacity criteria.
This is basically a sixth-month history of both your monthly outgoings and savings that will prove to your lender that you can comfortably meet your future mortgage repayments down the line. If you’re going for a joint mortgage or tenancy in common, you’ll both need to show joint evidence of your repayment capacity – team work!
The danger is, that some people can fall short of this without realising, as they save each month for a reduced deposit, with their tax relief in mind. They can get caught up in the excitement of their tax rebate, and lose sight of making sure their monthly savings will still prove their future repayment capacity. Ouch! It’s a good idea to have a chat with your local EBS Mortgage Master from the get go – they’ll let you know how much you’ll need to save each month to pass your repayment capacity test together.
If you and your partner are making an application to the Help to Buy scheme, then at least one of you must have spent the last four years working in Ireland. So, if you were both in Australia for two of the last four years, you’d be entitled to half of the rebate.
Now, let’s look at that word: rebate. The Help to Buy scheme is designed as a tax rebate. You have to apply through Revenue and this means that you must have paid over the value of the rebate in tax in Ireland over the previous four years.
So let’s say that you are buying a house for €320,000 with your partner. Now this means that your maximum rebate would be €16,000 – which in turn means that you’d have to have paid at least €4000 in tax each year for the previous four years.
Let’s say that one of you stayed in Ireland for the last four years, but the other one lived abroad for three of those four years. In this case, if one of the couple make the application for the rebate and have paid more than the rebate amount in tax over the last four years, then the application can be paid in full to one of the couple.
So, it’s an easy way of doubling your chances in effect!
The Help To Buy scheme is a tidy bonus for new homeowners if you manage to qualify. If you are thinking about buying your first home or have any other questions about mortgages in general, then 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.
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* This is calculated based on the central Bank Loan to value (LTV) of 90%. This limit means a first time buyer will need to save a minimum deposit of 10% of the house price, with a relative mortgage of 90%. The Help to Buy scheme applies to houses up to the value of €500,000 only.