Q&A

Your property questions answered.

Loan for refurb is proving hard to get

Q We own a house on which there is some equity. It was our first home and when we moved we were able to rent it out. We have been declaring the rental income every year since. Recently we applied for a loan against this property to do some work on it. The bank says that they will not count all of the rental income as income and because the house was once our “home”, we are not entitled to claim the mortgage interest against any rental income, and we will have to pay 42 per cent tax on all of the rental income. They also deduct several months rental income to allow for losing a tenant. Is this correct?

A Why would the bank count all of the rental income as gross income when it’s clearly not! As a landlord you have allowable expenses to do with the rental of the property but, after that, typically you must pay income tax on the profits – at 42 per cent if that is your tax band. When this house ceased to be your principal private residence and became a rental you would have alerted your lender who would most likely have changed your mortgage to an investment mortgage. You can claim mortgage interest relief, deducted at source, on a principal private residence but, as this is a rental property, you don’t get mortgage interest relief, instead the interest you pay on your investment mortgage is allowed as a deductable expense when it comes to figuring out your annual tax bill. As for the void issue, again the bank is being conservative to reflect the market. The strong supply of rentals increases the chance of voids – most landlords would factor in, at the least, a month’s void when calculating their earnings on a property. The bank is factoring in several months – conservative but not unreasonable. If your tenant gave notice for April 30th – do you think you’d have the place rented on May 1st? Also you say the money you require is for work on the rental. Do you expect your tenants to stay when that is going on? At full rent? You’d be lucky in this tenant-empowered market.

Is rent-to-buy scheme a winner?

Q What is your thinking on rent-to-buy? The deal we have been offered is that we rent the house for €750 per month and the developer holds the price for three years. If we buy within that three years the builder would give us back the rent we paid off the price. If we buy within 12 months he would knock a further €10,000 off?

A Developers have been inventive in persuading first-time buyers off the fence and into the property market and rent-to-buy is one such scheme. The obvious problem is that the developer “will hold the price for three years”. Does that mean you would be contractually locked into the March 2009 price for three years when there is no guarantee that the market price of the house will not fall in that time? Read the contract carefully. If the developer is willing to knock €10,000 off the price in 12 months, he will most likely be willing to do it today. If you want the house and have mortgage approval you may be better off bargaining hard now for a good price. You’ll find the developer receptive.

Your questions

Send your queries to Property questions, The Irish Times, The Irish Times Building, 24-28 Tara Street, Dublin 2 or email propertyquestions@irish-times.ie. This column is a readers’ service and is not intended to replace professional advice.