Can a first-time buyer get relief on a buy-to-let home?
Q&A: Dominic Coyle
When it comes to buy-to-lets, the Central Bank seeks to limit borrowing to just 70 per cent of the property’s value. Photograph: Andrew Matthews/PA Wire
I’ve been researching a subject but I’m getting contradictory answers. The short question is: I never ever bought a house; can I avail of the first-time-buyer rules if I want to buy to let?
Ms M.L., email
And the short answer is no.
First-time-buyer reliefs have a long history in the Irish market – mostly because successive governments have refused to take on landowners and developers to address continually escalating prices. Instead, they have opted to effectively “subsidise” purchasers to maintain what are windfall profits, particularly for landowners.
With house prices largely beyond the pocket of average first-time buyer in certain parts of the State, especially Dublin, these first-time-buyer reliefs are designed to bridge the “affordability gap” and head off the potential for political unrest from young people unable to realise an ambition to own their homes, and from their parents.
But they are very much geared to help people acquire homes to live in, not merely as an investment.
So it is with current tax relief. The help-to-buy scheme which, following recent Government intervention, now allows people to claim back up to €30,000 in income tax and deposit interest retention tax (Dirt) on savings over the four years before the year in which you purchase the property.
As it had a twin purpose when it was introduced – designed also to kick-start residential construction after the last crash – the property must be newly built and you must live in t as your main home, or principal private residence, for at least five years after buying it.
These new rules apply only until the end of the year but may be further amended or extended in the October budget.
And then there are the Central Bank mortgage lending rules. These cut first-time buyers some slack, allowing them to borrow 90 per cent of the value of the property – within earnings multiple limits – where other borrowers can only borrow up to 80 per cent.
However, in both cases, the bank’s rules state that these apply only for what it calls “principal dwelling homes” – ie a property you use as an owner occupier.
And as the Central Bank is the regulator on lenders, what it says goes. The individual banks cannot just flout the rules.
Importantly, when it comes to buy-to-lets, the Central Bank has a third, lower threshold. In this case, it wants to limit borrowing to just 70 per cent of the property’s value.
There is latitude granted by the regulator so that a small portion of lending can be in excess of these thresholds but that wriggle room is smaller for investment property mortgages than for owner-occupier loans.
And, in any case, lenders are currently very wary of exceptions: if anything, they are even tougher in applying limits and ensuring the potential borrowers are stress tested to ensure they can afford their loans.
So, you cannot avail of first-time-buyer rules to buy an investment property. And one final consideration, given that you are otherwise eligible to first-time-buyer status. By buying an investment property, you will forfeit the right to be considered a first-time buyer if and when you want to buy a home to live in yourself at a later stage.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.