Going sale agreed on your new home is only part of the challenge; getting the most bang for your buck is also important when it comes to financing it.
This means then looking for any Government incentives that might suit you, opting for a green mortgage where possible, and going with the lender that offers you the best deal.
And make sure to watch out for budget day on October 1st; you can expect some announcements on the housing front on the day.
Get the Government to help
When it comes to new homes, there are a myriad of schemes aimed at helping buyers secure their first homes.
Not all might suit you, but it’s worth doing your homework before buying, to ensure you’re maximising all the help you can get.
First up is Help to Buy, which is due to expire at the end of 2025. This offers a tax rebate of up to €30,000, which can be used to fund a deposit to help purchase a new home.
To qualify, you must be a first-time buyer (FTB); it’s only available on new homes valued at up to €500,000 (this is something that might increase on budget day); and if you’ve been working abroad in recent years, you may not have paid enough tax for a full rebate.
Another option (which can be used in conjunction with Help to Buy) is the shared equity, or First Home Scheme. Available for FTBs (and second-time buyers who are divorced/separated), this is aimed at closing the gap between what you might be able to afford, and what you want to pay, through the Government taking a stake in your property, of up to 30 per cent (or 20 per cent if you’re also getting Help to Buy).
From July of this year, the scheme is expected to appeal to more buyers as price ceilings were increased across 14 counties by €25,000. It means that all new homes worth up to €350,000 will now qualify for First Home, while price ceilings of as much as €475,000 for houses, and €500,000 for apartments, will apply in certain urban areas such as Dublin and Cork.
The scheme is of interest to new home buyers; latest figures show that more than 1,500 buyers across 25 counties have bought through First Home, while more than 4,000 have been approved for it.
It is not for all, however, and remember that the equity stake will have to be repaid should you choose to move, and if you don’t, you will start paying a fee on it from year six.
Finally, if you have been turned down by a lender for a mortgage, you could consider the Local Authority Home Loan, which is a Government backed mortgage offering a fixed rate of between 4-4.05 per cent over 25 to 30 years. Or, if you have your eye on a derelict or vacant property, the Local Authority Purchase and Renovation loan offers finance to buy the property, which can be used in conjunction with the vacant property refurbishment grant (up to €50,000 available) to do the home up.
Remember, these schemes also require you to take out specific local authority mortgage protection insurance, which does add to borrowing costs.
Also a possibility is a cashback mortgage; this offers either a fixed sum (Haven for example offers €5,000) or a percentage of the value of your loan back (2 per cent with PTSB for example). While attractive, as it will give you a much needed cash payment to help furnish your home etc, it will probably end up costing you more over the long term, as such offers typically don’t come with the lowest interest rates.
Go green
While the cost of funds is falling on the back of European Central Bank rate cuts – latest figures from the Central Bank show that the average rate was 4.11 per cent in July – don’t expect rates to fall too far, too fast. After all, Irish banks didn’t increase rates at the same speed as the ECB did – so are unlikely to cut them as fast either.
This means then, that it is particularly important to shop around for value. And, if you’re buying a new home, this will be a bit easier, as you can target a lender offering a “green” mortgage. Lenders typically offer these on homes with a Ber rating of A1-B3.
This can mean substantial savings.
AIB’s broker subsidiary Haven, for example, has a rate of 3.45 per cent, fixed over four years, while Bank of Ireland has a green rate of 3.6 per cent, fixed over the same term.
On a 25-year €360,000 loan, this means a monthly repayment of €1,792 a month with Haven, or €1,821 with BOI.
Without this green rate an interest rate of 4.15 per cent would mean monthly repayments of €1,930 a month – or an additional €138 a month/€1,656 a year.
[ Buyers of older homes may pay thousands more per year in mortgage repaymentsOpens in new window ]
Keep it tight
Another way to save money on the cost of your mortgage is to keep the term of your mortgage as tight as you can. Consider a €300,000 mortgage over 30 years – if the interest rate stays constant at 4 per cent over this period, your loan will cost you about €215,000 in interest payments alone. Bringing the term down to 20 years would mean the interest bill would shrink to €136,000 – or some €79,000 less!
Now such a short term is not going to be feasible for many (as your monthly repayments will also be higher), but the idea holds true even if you can only shave a year or two off the term of your mortgage.
Bear in mind, however, that another way of achieving this goal is keeping the flexibility of a longer term, but over-paying your mortgage when you can afford to do so.
This approach means that when you can least afford it, you can repay at the lower rate a longer term allows; but when you do have some extra cash, you can pay it down.
Fixed v variable
Traditionally, you had to be on a variable-rate mortgage in order to overpay it, and there are no restrictions on the amount you over-pay. Now, however, most lenders allow some element of over-paying on a fixed rate too.
This does depend on your lender; Avant Money for example, only allows one over-payment (up to 10 per cent of the value of the mortgage) a year, while with BOI, you can overpay 10 per cent of your normal monthly repayment.
But you might have other considerations in deciding whether to go fixed or variable – the cost. According to the Central Bank, the proportion of new home buyers opting to go fixed has rocketed from just 10 per cent back in 2014 to 66 per cent as of May of this year, largely due to the fact that variable rates have remained stubbornly high, as banks look to incentivise borrowers to go fixed.
Remember, it is also possible to allocate a certain amount of what you owe to be repaid at a fixed rate, and another portion at a variable rate. This can give you greater flexibility when it comes to paying it down/benefiting faster from rate cuts – although bear in mind that banks don’t automatically reduce variable rates when the European Central Bank makes a move.
