DETERMINED FIRST TIME BUYERS GET BUDGET BOOST

There was, unfortunately, very little good news in last week’s Budget.

There was, unfortunately, very little good news in last week’s Budget.

Families with more than two children will lose some of their child benefit, perhaps some back-to-school payment and those with older, third level goers, will pay another €250 towards their annual fee contribution and 3% of the annual grant. The reductions for single parent families will be particularly difficult.

All homeowners, except those in receipt of mortgage interest supplement or living on ghost estates will have to find €100 for the new household charge (aka property tax) and more carbon tax on home-fuel.

Pensioners did not see a reduction in their old age pension rate, but parts of the household benefits package was already cut back last September and now those who had qualified for the 32 week fuel allowance will see that payment reduced to 26 weeks.

The list of stealth taxes and cutbacks goes on an on, with the 2% increase in VAT and the higher motoring costs likely to make the biggest dent in already tight household budgets.

A big fear, that won’t be realised until renewal dates is how much higher private health insurance premiums will go as a result of the government raising (again) the cost of private beds in the public hospitals. The VHI claims it will increase their premiums by 50%, but even the Minister for Health dismissed that figure as exaggerated. Whatever the increase, anyone who is approaching their renewal should review their policy and at the very least switch to the equivalent corporate plan which should provide some savings on the existing plan. (Check out www.healthinsurancesavings.ie for arranging the review.)

There is a glint of good news in the Budget; the Minister for Finance did not begin reducing the higher income tax relief on private pension and AVC contributions, as expected. From next year until 2014, the pension relief for higher taxpayers was to be reduced over the three years to the standard rate of 20%, ending the tax incentive for anyone earning over €32,800 to save in a qualifying pension fund. (Without the tax relief such people would be paying higher rate tax on contributions and on their retirement income.)

The relief may still be reduced in the 2013 Budget, but for the next year at least, it remains.

The other good news is the changes to first time buyers mortgage interest relief.

In an effort to help new buyers afford a home, and for the 214,000 people who already bought their home between 2004 and 2008, the Minister announced that additional tax relief will be available.

Existing first time buyers, including those who buy this year, currently get 25% mortgage interest relief for the first and second tax year in which you pay mortgage interest up to a limit of €20,000. The relief is therefore no more than €5,000.

As a result of the budget the rate of interest that they can claim rises to 30% for those who bought between 2004-2008 and for new buyers from now until the end of December 2012. All mortgage interest relief runs out in 2017.

The extra relief for a couple can amount to up to a maximum of €900 a year for an individual and €1,800 a year for a couple.

Buying anything – whether pension or property – just because of a tax break is never a good idea. But for someone who has found a great bargain property and is sure that it will be their family home for many years, and they can secure a well-priced mortgage, 2012 could be their last chance to bag the enhanced mortgage tax break.

Not everyone is impressed by this latest move by the government to artificially boost what is still, after all, a falling price market.

Some mortgage brokers have noted that this tax relief measure does absolutely nothing about the huge and growing problem of homeowners in arrears or negative equity. There was absolutely no provision in the Budget for the funding of the bankruptcy and insolvency system that is supposed to be introduced by next March.

Any 2004-2008 buyers who are not even in negative equity will receive a benefit they don’t need, says Kevin McNerney, a mortgage broker with Trusted Advisor Group, adding, “Just because someone is in negative equity doesn’t mean they can’t afford to pay their mortgage.” An extra €200 in their case, he said, “will probably just get spent.”

“And when this relief expires in 2017 as is proposed, most of these people will still owe the same amount on their mortgage as they would had they not got the relief. It just means that their monthly repayments during this period would have been lower. For this initiative to have the desired effect the Government should insist that people continue to pay their current repayments and that the additional relief is paid directly off their mortgage every month”.

No such conditions attach to this relief. Nevertheless, the new terms will be welcomed by thousands of homeowners.

And who is in a position to look any gift horse in the mouth these days?