Q & A

Mortgages

I am an Irish citizen living and working in Austria. We have a relatively new (one-year-old) mortgage in Austrian schilling with Austrian bank Creditanstalt on our home here in Vienna. It's a one-year fixed-rate mortgage at a rate of 5.25 per cent and is due to be renewed in November. I have a few questions which you may be able to answer.

Is the bank of Scotland mortgage set in sterling or, as I suppose if it's being offered in Ireland, can it be taken in euros?

Will Bank of Scotland swap an Austrian mortgage, given that both Ireland and Austria are in EMU?

Finally, how does our present rate of 5.25 per cent compare with other fixed rates in Ireland? W.C., e-mail

You may be living in Austria but there is precious little escaping your notice back home. The arrival of Bank of Scotland on the Irish mortgage scene occurred only last week and your letter arrived before that.

As far as I am aware, the Bank of Scotland mortgages on offer here in the Republic are in pounds for the moment, although they are borrowing the money on European money markets largely denominated in euros.

As far as switching mortgages between states is concerned, I simply do not know. In theory, as you point out there is nothing to stop an Irish institution lending to people living in other parts of the euro zone and vice versa. However, while I won't say it has never happened, I have not heard of a single instance and it is certainly not encouraged by the institutions. I think the major concern is that of recovering money in the event of a deal going sour. After all, the legal systems within the various euro zone states are still very different.

In any case, you would need to check what, if any, penalties apply to moving your mortgage from your current lender. I would be surprised if the legal fees were not more considerable than in the case of a more traditional, locally bought mortgage. It has been estimated that the costs of switching from one Irish variable rate mortgage to another are up to £1,000 (€1,270). It would take a couple of years at the lower rate to recoup that cost in savings on mortgage payments and there is no guarantee that Bank of Scotland will continue to provide a rate that is as competitive visavis its rivals as it is today.

On the subject of fixed rates, I am not sure if the rate of 5.25 per cent you quote is the headline rate or the APR by which mortgages over here are more accurately judged. Also, I am not up to date with what has been happening with interest rates in the Austrian market but certainly, in the Republic, the most recent move in fixed-rate mortgage products has been upwards.

Having said that, one-year rates here are currently fixed at between 3.75 per cent and 5.25 per cent (between 4.8 per cent and 5.6 per cent APR) depending on the institution and whether you are a new or existing customer. Bear in mind, even if Bank of Scotland were prepared to quote a rate on an Austrian property, it is not currently offering fixed rates in the Irish market.

One final point to note is that, as one customer has discovered, Bank of Scotland does not appear to be offering loans to people looking for less than £48,000. That in itself could limit its market, in addition to other moves designed to ensure it lends only to the most secure and low-risk customers.

Telecom

As you know, holders of Telecom shares will receive bonus shares if they retain their Telecom shares until mid-July 2000. Will they lose this right to bonus shares if they choose to minimise their tax exposure by bed and breakfasting the shares before April 6th, 2000? In other words, will an investor be deemed to have disposed of their shares and so lose their right to bonus shares, even though technically they are merely selling the shares back to themselves in a paper transaction, using a broker's services to facilitate the process? I am sure the subject will interest readers as many are small investors for whom the bed-and- breakfast option, if exercisable, would add greatly to their eventual gain. Mr D.C., e-mail

I think you already know the answer to this one. While the whole point of bed-and-breakfasting shares - selling shares and buying them back almost immediately - is to maximise one's capital gains tax free allowance, it is still a sale.

Although, as you say, they are technically selling the shares back to themselves in a paper transaction, the fact remains that they are selling them. If they were not, the Revenue would never allow investors to claim capital gains allowances in this way. Indeed, in Britain, they are getting increasingly fussy about such transactions.

As the shares are sold, at least in the short term, the investor would appear to fall outside the terms of Telecom's bonus free share offer which is designed to reward investors for staying loyal and not offloading the shares for a quick profit . . . the very thing a bed and breakfast deal would do.

Credit Cards

I want to know if one has to pay Government tax on credit cards even if one is not issued with a card, has not used the card, but still has a small outstanding balance with the card provider? Is the tax on the card or on the account? Ms G.O'M., e-mail

I am somewhat confused. I can only surmise that the balance was built up when you did have a card and that the card was subsequently returned to the institution, destroyed or withdrawn by the issuer.

Not that it matters much for, as you discovered, when you saw the tax charge appear on your account, the tax is on the account and not on the physical card. This means that as long as the credit card account remains open - i.e. has a balance outstanding - the annual Government charge will be levied. There appears to be an in-built assumption that an open account means the existence of a card, regardless of whether you or the issuer holds that card.

On the plus side, people who hold two or more cards on the one account will only be levied one time per year with the Government charge, regardless of the number of cards held.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.