Questions & Answers

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.

Mortgages

I am finishing my one-year fixed rate at 4.1 per cent in a month and I am reviewing the variable and fixed interest rates currently available at First Active. The variable is 5.88 per cent and the two-year fixed rate is 6.69 per cent. I know you don't have a crystal ball, but I think the rates are going to rise again before the end of the year. Due to that, I would rather go fixed but since there is no one-year fixed rate available I am a bit apprehensive to fix for two years.

What would be your advice?

Ms S.H., e-mail

As you say, none of us has a crystal ball, but your view that interest rates may yet rise again before the end of the year mirrors the consensus view among rate watchers. That view says rates will rise by a quarter point before the new year and by a full percentage point, if not more, by the middle of next year. That would bring the European Central Bank rate to 5.5 per cent and leave the First Active variable rate sitting at 6.88 per cent - assuming they pass on all the increases in full, which is a fair bet.

It is then a question of betting on whether rates will rise or fall from that mark and, if they fall, when and by how much. Even getting market watchers to put much convictions into their forecasts that far ahead is difficult.

As to advice, you clearly feel happier with the idea of a fixed rate, even if it is initially higher than the current rate. In a rising interest rate environment, that is a reasonable position. But remember, the people setting the rates at First Active will have done so on the basis that they expect to make money on them over the period of the fix. Thus, they are betting that while rates may hit, or pass 6.69 per cent over the next two years, they will not average 6.69 per cent over the entire two-year period. If you are taking such a rate, you are essentially betting that the average rate over the period will be 6.69 per cent or above.

Of course, there is always the element of security - the knowledge that you will not experience an unpleasant surprise on rates over the period of the fix. You don't give details of the mortgage itself or any indication of how much leeway you would have in the event of interest rate rises, but if you have bought as recently as last year, as your current deal would indicate, I would guess you do not have much leeway. Few people have at that stage.

In that event, a fixed rate might be advisable simply because the interest rate outlook is more uncertain now than it has been recently. At the First Active two-year fixed rate, assuming a mortgage of £100,000 (€127,000), you would be paying £756.80 a month on the basis of a 20-year mortgage; at the current variable rate, the mortgage would cost you £709.50 on the same basis. By the end of this year, assuming the rate does go up at least 25 basis points as expected, you mortgage rate will be around 6.13 per cent and your repayments £723.95 per month on a £100,000 mortgage.

Of course, one option would be to look around at other lenders. The variable rate at First Active is currently lower only than those at Irish Permanent and National Irish Bank - and both of those at least offer the one-year fixed rate for existing borrowers that you are seeking.

The most competitive variable loans at the moment would cost you less than £660 a month on the loan outlined above, a saving of £50 a month and the most competitive two-year fix, £713 a month, scarcely above your current variable rate.

Ultimately, you need to calculate how much risk you can stand. But you should certainly keep your mind open to other lenders offering better value.

Starting up

Please could you tell me whom to contact as I am looking for a grant to start off a business? Any e-mail addresses would be very helpful.

Mr M.O., e-mail

Grants for business start-ups tend to come from the Government and so it would be in this case. I would suggest you chase up the Department of Enterprise, Trade and Employment at www.irlgov.ie. I know one government agency in the business start-up area is Enterprise Ireland and it has information specifically aimed at people in start-up situations at www.forbairt.ie/funding/comdev/ startup/.

Another area you might take a look at is the European Union, which has several programmes aimed at enterprise, though I imagine all are administered locally. Third level institutions have incubator units for young companies, though generally with associations to the college itself.

Even local enterprise initiatives might be able to help. Again, information should be available from the Department of Enterprise, Trade and Employment.

Housing

My wife and I own a house in Dublin and live in the USA. We have it about seven years. We lived in it for about two years and then moved away. We didn't sell it as we planned to return to Ireland in a few years. However now we have decided to stay. We now want to sell it. Can you tell me how much Capital Gains Tax we would be liable for? Would it be better to leave the money in Ireland or to bring it back to America? Can you also tell me where I can get more information about this subject?

Mr R.B., e-mail

Capital gains tax is a minefield and there are some exemptions for people who have emigrated but, as far as I can see, this does not apply to houses or other "immovable property". As such, it appears you would be liable to capital gains tax unless the property has been your principal private residence, which appears unlikely. The tax is currently charged at 20 per cent.

To calculate the bill, you need to work out the profit - after expenses such as selling costs - on the property. You would also need to build in an indexation figure to take account of inflation over the seven years you have owned the house. You multiply the price you paid for the property by the indexation factor to get a new "base" price for working out capital gains. This is the price you subtract from the sale price, minus costs, to calculate the capital gain.

The Revenue Commissioners at www.irlgov.ie/revenue will be able to give you a precise indexation figure by e-mail. Don't bother searching the site for it, as the search facility is poor and the site layout awkward. The indexation figure should be around 1.138.

As you lived in the house - presumably as your principal private residence - for two of the seven years, you can get a deduction off the capital gains tax bill. Calculate five-sevenths of the taxable gain and you will face a charge of 20 per cent on that figure.

As to what to do with the money, the pound is currently close to historic lows against the dollar. In that environment, it might make sense to leave the money here for a while and see what happens the exchange. The dollar is strong relative to all its major rivals and it would appear there is room for some downside that might make it more profitable to repatriate your money at a later stage.