Financial advice: Buying a house with no savings
The help to buy scheme has been in existence since January 2017 and began by allowing first time buyers get a refund of up to 5% of the purchase price of a property in the form of a tax rebate.
The total tax rebate is limited to the total income tax and DIRT paid over the previous four tax years and is capped at €20,000. If you have paid less than €20,000 income tax/ DIRT in the past 4 years, the maximum rebate possible will be the total amount of tax you paid.
However, the scheme was tweaked last month when the government announced its €7 billion stimulus in its bid to revive the economy.
The big changes to the scheme is that the amount you can now claim back has increased to 10% of the value of a property or €30,000, whichever is the lower.
The tax rebate ceiling has increased from €20,000 to €30,000, so if you buy a property for €300,000, you can claim the maximum rebate of €30,000, but, if you buy a property for an amount up to €500,000, the relief is capped at €30,000.
It’s important to note, that this increase to 10% is only a temporary measure until the end of 2020.
And the start date of the increased amount is from July 23rd.
The incentive was introduced to help fast track the home buying process for first time buyers, and it’s proved reasonably popular since it’s launch. Up to June 2020, there has been 42,072 applications made, with an approval rating of 45%.
2% of applicants have received €5,000 or less, 10% have received between €5,000 and €10,000, 34% have received between €10,000 and €15,000, 39% received between €15,000 and €20,000 and 15% have received €20,000.
If you are a first time buyer and thinking of buying a new property in the next 4 months, you have that window of possibly getting double the amount, you previously would have received before the changes were announced last month.
And the significance of this change, means that first time buyers could now buy a property without having any savings.
Prior to this change, if they were buying a new property, at a minimum they would need 5% if they were using the help to buy scheme to fund the other 5%.
If they were buying a new property for €200,000, they would have needed a minimum of €10,000 in savings.
But now they need ZERO because they can get 10% of the purchase price using the help to buy scheme.
So, any first time buyer who has no savings, has the opportunity to buy a new property with ZERO down, up to a maximum purchase price of €300,000.
That’s of course assuming they have enough income that qualifies them for a loan in the amount of €270,000 and they have paid income and DIRT tax in the amount of €30,000 over the last 4 years.
Let me give you a couple of examples:
Purchase Price: €200,000
Mortgage €180,000 (income requirement is €51,428 for a single applicant or the combined salary of two people)
10% Requirement €0
€20,000 funded by HBS scheme (provided either single applicant or joint applicants have paid in excess of €20,000 in income/DRT tax in previous 4 years)
Purchase Price: €300,000
Mortgage €270,000 (income requirement is €77,142 for a single applicant or the combined salary of two people)
10% Requirement €0
€30,000 funded by HBS scheme (provided either single applicant or joint applicants have paid in excess of €30,000 in income/DRT tax in previous 4 years)
Purchase Price: €400,000
Mortgage €360,000 (income requirement is €102,857 for a single applicant or the combined salary of two people)
10% Requirement €10,000
€30,000 funded by HBS scheme (Provided either single applicant or joint applicants have to have paid in excess of €30,000 in income/DRT tax in previous 4 years)
If you’re not thinking of buying this year, and the scheme continues to run until it’s end date in December 2021, even at the lower rate of 5%, should you take advantage of it?
Before you can make up your mind, you need to know what it’s all about and whether it even applies to you, so I’m going outline, what some of those key areas you need to be aware of are:
Who qualifies for the inventive?
You need to be a first-time buyer, buying or building a new property that is priced up to €500,000.
How big does my mortgage have to be?
Your mortgage must be a minimum of 70% of the total cost of the new house or 70% of the value of a new self-build.
You are a first-time buyer, but your partner is not, what then?
The incentive is only available to people who’ve never bought a property before. If either you or your partner have previously purchased a home by yourself or with someone else, you won’t qualify.
You can still claim the rebate if you’re a first-time buyer and you take out a mortgage in your own name, but you will have to exclude your partners income details, and the amount you will be mortgage approved for will be based purely on your income.
What if both of us are first-time buyers? Who applies then?
Both of you, if you wish.
More than one buyer can apply as long as all parties are first-time buyers. The maximum tax rebate of €30,000 applies per property, so the rebate can be claimed against more than one buyer’s income tax and DIRT payments over the previous four years.
What about second-hand properties?
The Help to Buy incentive was designed to stimulate the construction of more new homes so it’s only available on new builds.
I haven’t found a house yet can I still apply?
Yes, you can submit an application where you will be able to find out how much you would be entitled to before you identify and agree to buy a property.
Revenue will process your application and notify you of the maximum tax rebate you can claim based on your tax record. Once you know that, you can then tell your lender how much you will be entitled to and how much you still need to save.
How do I make an application?
You first have to register and use myAccount in order to apply for HTB online.
There are two stages to the online process:
* The application stage
*The claim stage.
What happens if I sell the property in a year or two years after I purchase it?
Revenue can claw back refunds if:
* you were not entitled to the refund
* you do not live in the property for a minimum of five years
n you did not finish the process to buy the property
* you did not finish building the property.
If you leave or sell the property within 1 year, 100% of the rebate has, to be repaid, 2 years 80% has to be repaid, 3 years 60%, 4 years 40% and leave or sell after 5 years, 20% has to be repaid.
Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at email@example.com or www.harmonics.ie