Making Cents: How to buy a home in Limerick with no savings
I’M GETTING lots of requests from readers asking me to write about the Help to Buy Scheme again.
The new year isn’t a million miles away and they want to familiarise themselves with this scheme and see if the rumours are true i.e. they could possibly buy a property without having any savings in place.
And these rumours are partly true and in a moment I’ll explain why this is the case.
Okay, 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 was limited to the total income tax and DIRT paid over the previous four tax years and was capped at €20,000.
However, the scheme was tweaked in July 2020 and became known as the enhanced help to buy scheme and it was due to end at the end of this year, but it was announced in Budget 2023 that it was extended until the end of 2024.
The big changes made to the scheme back in 2020 is that the amount you can now claim back is the lesser of:
n €30,000
- 10% of the purchase price of a new property or
- 10% of the approved valuation of a self-build property or
- The amount of income tax and DIRT you paid for the previous 4 years
The significance of this change means that technically a first-time buyer can now buy a property without needing to have any savings at all.
Prior to this change, if they were buying a new property, at a minimum they would need 5% themselves, 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 some examples:
Example 1:
Purchase Price: €300,000
Mortgage: €270,000 (income requirement is €67,500 for a single applicant or the combined salary of two people – this will apply for 1st January 2023 where the new income multiple of 4 times salary is being applied)
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)
Example 2:
Purchase Price: €400,000
Mortgage: €360,000 (income requirement is €90,000 for a single applicant or the combined salary of two people – again this will apply for 1st January 2023 where the new income multiple of 4 times salary is being applied )
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)
What type of property qualifies?
To qualify for HTB, the property that you build or buy must be:
-Your home
-Newly built with the construction subject to Value Added Tax (VAT) in Ireland.
The property must never have been used, or have been suitable to use, as a residential home. If the property was non-residential, but has been converted for residential use, it may qualify for HTB. If you buy or build the property as an investment, it does not qualify for HTB.
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.
The scheme only applies to properties that are bought or built as the first-time buyer’s home. It is not available for investment properties and cash buyers do not qualify. If you have inherited or been gifted a property it will not affect your eligibility either.
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. The house must be occupied by the buyer for at least five years after the house becomes habitable.
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.
Can you use it for buy-to-let properties?
No - buy-to-let homes or other investment properties are excluded from the scheme. The property must be the first-time buyer’s main residence.
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. There’s no tax rebate for second hand properties.
How is my salary linked to the amount I am entitled to?
The tax rebate is based on your income tax and DIRT payments over the previous four years.
If you purchase a property costing €250,000, the maximum you can receive is 10% i.e. €25,000.
If you paid tax in the previous four years and it amounted to €28,000, you can only claim €25,000.
If you paid tax in the previous four years and it amounted to €17,000 then you are only entitled to €17,000.
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.
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
- 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 protected] or www.harmonics.ie