Finance Your Home: Green Options

Securing a sale agreement on your new home is only half the battle; acquiring value for your money during the financing stage is just as crucial. This involves exploring any potential Government incentives that could be advantageous to you, contemplating a green mortgage, and choosing a bank or building society that offers you the most competitive deal. Keep an eye on the budget announcement on October 1st; it’s likely there will be key updates regarding housing.

How the Government Can Assist You
There’s a multitude of programmes available aimed at supporting buyers to own their first homes. Though not all may be suitable for you, it’s beneficial to do extensive research prior to purchasing to make sure you’re capitalising on all the aid available. First in line is the Help to Buy scheme, due to cease at the end of 2025. It provides a tax rebate of up to €30,000 which can be used towards a deposit for a new home purchase.

In order to be eligible, you need to be a first-time buyer (FTB); it is only accessible for new homes valued up to €500,000 (a threshold which may rise on budget day); and if you have worked overseas in recent years, you may have insufficient tax paid for a full rebate.

An additional choice (usable alongside Help to Buy) is the shared equity, also known as First Home Scheme. This scheme is accessible for FTBs (as well as second-time buyers who are divorced/separated). The primary goal is to fill the financial void between what you can afford to pay and your desired payment, by the Government investing in your property, up to 30 per cent (or down to 20 per cent if you’re also benefiting from Help to Buy).

Beginning this July, the programme is anticipated to attract additional buyer interest as the feasible purchase price limit has been augmented by €25,000 in 14 counties. This development implies that all newly-built homes worth below €350,000 are now eligible for the First Home scheme. In certain city locations such as Dublin and Cork, however, the ceiling prices can go up to €475,000 for houses and €500,000 for flats.

The new scheme seems to appeal to first-time homeowners. Most recent statistics reveal that more than 1,500 buyers in 25 counties have purchased via First Home, and over 4,000 have received approval.

The scheme is not universally suitable and bear in mind that the equity share will require reimbursement upon relocation. Furthermore, if you opt to stay, from the sixth year you will commence fee payments.

One other option for those declined by a lender for a mortgage loan is the Local Authority Home Loan, a Government-backed mortgage offering fixed rates between 4-4.05 per cent spread across 25 to 30 years. If you’re interested in a dilapidated or empty property, the Local Authority Purchase and Renovation loan provides funds to purchase the property. This can be paired with the unoccupied property refurbishment grant(up to €50,000), to renovate the property.

Kindly note that these programmes also necessitate specific local authority mortgage protection insurance, which could increase borrowing costs.

Another option to explore is a cashback mortgage. This provides a predetermined amount (for instance, Haven offers €5,000) or a percentage of your loan amount (2 per cent with PTSB). While initially appealing with a cash boost to furnish your home, it could add up over time as these offers typically come with higher interest rates.

While the funding cost declines as a result of European Central Bank rate reductions, recent Central Bank statistics show an average rate of 4.11 per cent as of July, it would be prudent not to anticipate a rapid fall in rates. Markedly, the Irish banks’ increases have not mirrored the ECB’s so their cuts are unlikely to be as swift as well.

When looking for the best value, shopping around is crucial, especially if you’re in the market for a new house. One way to achieve this is by zeroing in on lenders offering eco-friendly mortgages, typically aimed at homes with an A1-B3 Ber rating. This could potentially lead to substantial monetary savings.

By way of example, Haven, a subsidiary of AIB, currently offers a 3.45% fixed rate over four years. In contrast, Bank of Ireland provides a similar green fixed rate over the same period but at 3.6%. With a 25-year loan of €360,000, monthly repayments would be around €1,792 with Haven and €1,821 with Bank of Ireland. Compare this to a non-green rate of 4.15%, which would result in a monthly payment of €1,930 – an extra €138 each month or €1,656 annually.

Maintain Stringency

Another method to lessen your mortgage cost is to limit the period of your mortgage as far as it is feasible. For a €300,000 mortgage held over 30 years, with a constant interest rate of 4%, you’ll have an interest payment of roughly €215,000. However, reducing the term to 20 years would shrink the interest payment to €136,000, a decrease of around €79,000!

Although shorter-term mortgages may not be possible for everyone due to the higher month-to-month cost, the principle remains true even with a reduction of one or two years. It’s important to remember that another way of achieving this is to maintain a longer mortgage period but overpay when possible.

This strategic method allows you to make lower repayments when finances are tight, but make higher repayments when possible.

Fixed versus Variable

Overpaying traditionally required a variable-rate mortgage with no restrictions on overpayment amount. Now, several lenders also permit a degree of overpayment on fixed-rate mortgages.

Your lender may set rules around how many over-payments you can make annually. Avant Money, for instance, permits one extra payment per year up to 10% of your mortgage’s worth. Bank of Ireland, conversely, permits overpayment of 10% of your regular monthly remittance.

However, other factors may influence your choice between fixed or variable rates, such as the expense. The Central Bank reports that fixed-rate mortgage adoption has jumped from a meagre 10% in 2014 to a substantial 66% as of May this year. This monumental increase can largely be attributed to persistently high variable rates, as banks aim to entice borrowers towards fixed-rate mortgages.

Consider that it’s feasible to designate a specific portion of your owed sum to be repaid at a fixed rate, and the remainder at a variable rate. This approach may provide increased versatility in repayment and quicker benefits from rate reductions, although it’s worth noting that banks don’t necessarily decrease variable rates following a European Central Bank’s action.

Written by Ireland.la Staff

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