First time buyers are set to lose over €30K if they do not purchase a property before June when mortgage interest relief for people buying their first home is to be abolished.
Currently mortgage interest relief is available to first time buyers for up to 7 years after they buy their property. Over a 7 year period a qualifying first time buyer couple availing of this generous relief could save over €30K
The changes to mortgage interest relief, also known as Tax Relief at Source (TRS) are outlined in the Programme of Government. The new measures include an increase in TRS for people who bought properties between 2004 and 2008.
Angela Keegan, Managing Director of leading property website MyHome.ie, believes many first time buyers are unaware of the full implications of the June deadline and says the new measures should be delayed until next year when the relief was due to be phased out on a gradual basis.
‘Buying a house is the biggest and most important financial transaction people make. Introducing drastic changes like this at such short notice is particularly unfair to first time buyers who have already been hit by a range of measures such as changes to stamp duty, more expensive mortgages and the unavailability of ECB tracker and fixed rate mortgages’ Keegan said.
Keegan also pointed out that it was also bad news for the property market as a whole. ‘First time buyers were the one bright light in the property market in 2010 and so far that trend looks set to continue in 2011. Taking away this relief in such an abrupt fashion will hit those buyers as well as the property market and as a consequence the State’s coffers. Neither of the three can afford this measure’ she said.
Karl Deeter from Irish Mortgage Brokers believes cutting one of the few benefits available to future buyers in order to improve the position of people who purchased during the boom is highly questionable.
‘The rationale behind the introduction of this measure is flawed. Why punish the prudent, the young and perhaps not so young who wisely opted not to buy during the bubble? Why remove the small tax advantage we have traditionally given people on their first home purchase – from first time buyers grants to TRS – and instead transfer that advantage to those who have already bought? Why penalise the only group capable of kick-starting the property market?’ he said.
Deeter also believes the plight of the boom time buyers may not be quite as bad as commonly thought. ‘An analysis of the introduction and draw down of tracker mortgages indicates that the majority of buyers during the boom secured this type of mortgage. This gives them a great advantage over first time buyers in the current market, where only more expensive variable rate products are available. A programme specifically aimed at helping distressed borrowers is laudable, but it has to be targeted.’ Deeter said.
An example of how first time buyers will be affected by the changes to TRS are provided in the Note to Editor.
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Contact Kieran Garry
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Note to Editor: The peak average first time buyer mortgage occurred in Q1 2008 at €251,000. Presently the average drawdown is €188,000.So the ‘average mortgage’ from 2008 on a 2.1% tracker costs €1,076 per month. Current TRS is €80pm, so the net cost is €996. With the ‘new bigger TRS’ in the Programme for Government the TRS will rise to €119 resulting in a monthly payment of €957, an extra saving of €39 per month.
Compare that to 2011’s first time buyer who misses out on TRS. If they take a loan out for €188,000 at a 4.3% variable, their cost per month is €1,023. With rates likely to push up over 5% irrespective of the ECB, its estimated that by this time next year the divergence between the two mortgages could be as much as €150.
Therefore the effect of not having TRS for an average first time buyer is the equivalent of adding €33,000 to the price tag of the house, or taking one month’s wages from them per year if they are on the average industrial wage.
Figures provided by Karl Deeter of Irish Mortgage Brokers.