IT'S now five years since Irish house prices started to collapse, wiping up to 60 per cent off the price of properties -- and pushing hundreds of thousands of homeowners into negative equity.
Most of those homeowners have been stuck in the negative equity trap for some time now. As well as being unable to sell their home because the sale proceeds would not be enough to repay their hefty boomtime mortgages, many have been forced to become reluctant landlords -- and at a prohibitive cost.
The dramatic collapse in house prices has prompted many homeowners to rent out rather than sell their own home. Doing so allows them to move house and put off selling their property until prices hopefully pick up enough to ensure a house sale pays off their mortgage.
Renting out your home, however, can burn a deep hole in your pocket.
TAX
You could pay as much as 55 per cent tax on the profit you make on rental income, says Cathal Maxwell of the tax website, paylesstax.ie.
The tax you pay consists of your higher rate of income tax (which could be 41 per cent) and the universal social charge (7 per cent). An ordinary PAYE worker therefore could pay up to 48 per cent tax on rental income, depending on how much they earn.
If you're self employed or living off investment income, you could also have to pay PRSI of 4 per cent on rental income -- bringing the total amount of tax paid up to 52 per cent. If you're self-employed and earning more than €100,000, you could pay as much as 55 per cent tax on rental income as your earnings over €100,000 attract a universal social charge of 10 per cent.
You can reduce your tax bill by writing off 75 per cent of your mortgage interest against rental income. However, your mortgage interest is only a portion of your mortgage repayment -- you can't write your full mortgage repayments off your rental income.
This could leave you substantially out of pocket if you're only getting enough rent to cover your mortgage repayments -- or indeed, if you can't even secure the rent to cover your mortgage repayments.
There are other expenses which you can deduct off your rental income when calculating the amount of tax you should pay.
Along with the tax on rental income, you must also usually pay the €200 non-principal private residence tax if you rent out your home.
LETTING AGENTS
Letting agents can save you the hassle of finding tenants and dealing with tenants' problems. But they don't come cheap.
You could pay a letting agent 6.25 per cent of the rent to find tenants for you -- plus 23 per cent VAT. So if you make €14,400 in rent on a property a year, you'll easily lose about €1,107 to your letting agent.
If your letting agent manages the tenancy as well as letting it out, you could pay fees of between 12.5 and 15.5 per cent a year (plus VAT). So you could pay €2,745 a year to your letting agent if you make annual rent of €14,400.
However, you can deduct letting agent fees from your rental income when calculating your taxes, thereby reducing your bill.
"If hiring a letting agent, ensure the agent is licensed and bonded," said Margaret McCormick,of the Irish Property Owners' Association, which represents landlords. To check if a letting agent is licensed, contact the Property Services Regulatory Authority (www.npsra.ie).
INSURANCE
A landlord's house insurance is easily 50 per cent more expensive than insurance for a home you live in, according to David Hughes, director of online insurer, getcover.ie.
"Tenants are usually not as careful with your home as you would be, so there tend to be more claims for a rented property," says Hughes. "As a result, landlord insurance is significantly more expensive than insurance for a property you live in yourself." If you want to keep your house insurance bill down, it could work out cheaper to rent to a family, professionals or retired people. "Student tenants tend to result in higher house insurance premiums," said the IPOA's McCormick.
LOSING YOUR TRACKER
That cheap tracker mortgage you snapped up could be a thing of the past if you rent out your home.
Some banks will pull your tracker mortgage if you rent out your home -- but this will depend on your tracker mortgage contract and your financial circumstances.
If you're renting out your home because you're having difficulty paying your mortgage, you should be able to hold on to your tracker. But if you're renting out your home so you can buy another property or rent out a larger home, you could lose your tracker -- and end up with an interest rate three times the size.
A PTSB spokeswoman said a customer could lose their tracker rate and be moved on to a residential investment mortgage interest rate of 5.8 per cent "if the customer is simply moving from one property to another for lifestyle or other reasons".
A spokeswoman for AIB said its approach "is not to amend the tracker rate, particularly in cases where the house continues to be the customer's only property. But if a customer wishes to buy a new home, this will be subject to a separate contract. As a customer may only have one principal dwelling house, the existing mortgage would then be classified as a buy-to-let and would be subject to discussion."
A spokeswoman for Ulster Bank and Bank of Ireland said each customer's case would be considered individually.
OTHER HEADACHES
If you rent out your home, you must register the tenancy with the Private Residential Tenancies Board, which costs €90.
You must also get a BER (Building Energy Rating) cert for your home. A BER cert usually costs between €100 and €150 but it could be higher. You must pay the €100 household charge -- which is to be replaced by the property tax next year.
All the above financial headaches will pale in comparison to that caused by a tenant who does not pay the rent. "You could be 18 months trying to get a tenant who doesn't pay the rent out of your property," said McCormick.
"It's good to get references for tenants from employers and previous landlords -- but it's very difficult to protect yourself from troublesome tenants."
Still want to play landlord?
- Louise McBride
Monday, September 24, 2012
Renting out your house could burn a big hole in your pocket - Independent.ie
Wife of former Nama official facing lawsuit resigns post - The Irish Times - Fri, Sep 21, 2012
ALICE KRAMER, wife of the former Nama executive who is facing a criminal investigation for allegedly taking confidential information from the agency, has left her job at professional services firm, Ernst & Young.
The High Court heard last week that former Nama senior portfolio manager Enda Farrell e-mailed confidential documents to Ms Kramer before he left the agency in March to join private equity group, Forum Partners.
His action sparked investigations at Nama and at Ernst & Young, which carried out its own inquiry following a request from the State agency. The firm has completed its inquiry and passed the results to Nama.
It is understood Ms Kramer resigned from Ernst & Young within the last few days. She had a senior role in a division advising clients on compliance and other issues.
Ernst & Young has not commented beyond confirming that it carried out an investigation and passed its findings on to Nama.
The agency confirmed last week that it reported to the Garda that an internal investigation showed a former employee had taken confidential information without authorisation.
Nama said there was a possibility a criminal offence under section 202 of the Act that established the agency “may have been committed”. It also raised the issue with the Data Protection Commissioner.
The statement did not name Mr Farrell, but on the same day that Nama issued it, the agency brought proceedings against him and Ms Kramer to the High Court’s commercial division.
The issue came to light after it emerged the couple had bought a four-bedroom house and two acres of land at Sundays Well, Lucan, Co Dublin, from property dealer, Thomas Dowd, for €410,000, while Mr Farrell was still working for Nama.
Mr Dowd, a director of property investment firm Asvestus – which was originally controlled by Derek Quinlan – is a Nama client.
After learning of the deal last month, Nama suspected it may have breached its procedures and hired Deloitte to audit the purchase.
As a result, the agency learned confidential material may have been removed without its authorisation. The material included spreadsheets and other documents containing details of its largest clients.
It subsequently took in camera High Court proceedings against the couple, where it got a series of orders “directing the defendants to deliver up all documents, communications and materials which contain confidential information relating to Nama”.
It subsequently recovered data from the defendants’ computers and other storage devices and is now analysing that information.
The proceedings were moved to the Commercial Court last week and their in camera status was dropped at Nama’s request. The case is due back in court on October 4th.
Forum Partners hired Mr Farrell last March to head its Irish division. The fund, which manages $6 billion worth of assets, has reportedly begun to focus Europe’s distressed debt markets.
Meet the farmer who sold his land for €1.5m seven years ago - and bought it back for €60,000 - Independent.ie
IT IS the ultimate sign of our dramatic transformation from boom to bust.
A Co Meath cattle farmer has bought back an 8.5-acre site from a developer for just €60,000 only seven years after selling it himself for close to €1.5m.
David Gilsenan from Crossakiel near Kells proved that it's an ill wind that blows no good -- at least for farmers.
At an auction in Navan, Mr Gilsenan was one of just two bidders as he snapped up land that he himself had sold for a fortune in the Celtic Tiger years.
During the boom, the site was earmarked for a housing estate with 45 homes on the edge of the village of Crossakiel.
Three local brothers -- Seamus, David and Daniel Fagan -- bought the site and would have hoped to receive €250,000 for each of the completed three-bedroom houses.
The Kells area is well inside the Dublin commuter belt -- only an hour by car from the city centre.
But the project never got off the ground, and now only cattle rather than commuters can be found on the rich Meath pasture.
A property sign lying on the ground is a forlorn reminder of how the development site is only five minutes away from the new M3.
Yet Mr Gilsenan, whose farm adjoins the property, will not even have to remove a fence to enable his cattle to graze in the field.
The plot was never even fenced off from his own property after it was bought by the developers.
At the recent auction at Raymond Potterton in Navan, bidding started at €50,000. After four further bids the price rose to just €60,000 before it was sold at that price to Mr Gilsenan.
Mr Gilsenan, a well-known local cattle breeder, declined to comment on his bargain purchase yesterday.
A member of his family said: "This is private family business.''
At the peak of the boom, the 8.5-acre site is believed to have changed hands for about €1.5 m.
But the sale back to Mr Gilsenan is seen as part of a growing trend where development sites on the edge of rural villages are being bought by farmers and reverting to pasture.
Tom Crosse, of GVM auctioneers, said there is a realisation by banks that holding on to rural development land is pointless.
- Kim Bielenberg and Jim O'Brien
New licensing system shows regulator's teeth - The Irish Times - Thu, Sep 20, 2012
Reports of teething problems with the new system for licensing of estate agents have trickled steadily in to the Block.
Agents have been surprised by the paperwork involved, and concerns have been raised about the requirement for applicants to show they have held an auctioneer’s licence or permit issued by the Revenue Commissioners for three of the five years immediately preceding their application. This requirement has implications for women practitioners who may have taken leave to have children, or for parents who took a career break to focus on child rearing.
As one estate agent put it: “It’s desperate to have to say to a colleague with 15 years’ experience, IAVI qualifications and a third-level degree that theyre not eligible for the licence because they took time out for their family. There seem to be a lot of grey areas.”
In response, property services regulator Tom Lynch said that the office hadnt noticed this arising as a problem with applications to date. He added: We’re prepared to look at all cases, and if a person can give ample supporting evidence of a special circumstance we will listen to them.
Similarly stories are emerging from smaller agencies, in which unqualified family members help out but are no longer able to do so because they are ineligible for the new licence. According to one agent: The system could look at issuing a training certificate for people to allow them continue to work while they are studying for appropriate qualifications.
However, Lynch says the legislation in its current form doesn’t allow for a training licence, adding that the point of the licensing system is to introduce greater professionalism to the industry. Employees working closely with licence holders and undergoing a course of study can continue to work providing they are not directly engaged in the provision of property services such as price negotiations or contracts. However, they can give out information, including showing houses and handing out brochures.
So far the regulator has received 5,000 applications and, according to Lynch, 250 applicants were instructed to cease trading immediately because they didnt hold auctioneers’ or estate agents licences as issued by the Revenue Commissioners.
There have also been recent cases where traders have been told not to hold an auction because they didn’t meet the necessary requirements. In the event, a licensed colleague was drafted in to do it.
Nobody ever said the path to a professional, transparent industry would run smooth.
Gloom beats boom as house prices fall faster here than anywhere else - Independent.ie
IRISH house prices continue to fall faster than anywhere else in the world, the IMF says in a new report. The Greeks are next, while Germans and Brazilians are seeing steep price gains.
The three countries with the steepest declines in the 12 months to March, when adjusted for inflation, are the three bailout countries of Ireland, Greece and Portugal.
Spain, which has already received a banks bailout, and which is widely expected to seek a formal bailout sometime next month, had the fourth worst decline.
At the other end of the spectrum, house prices in booming Brazil are up more than 15pc while those in Germany have gained more than 10pc. Other countries which have also had increases include the Ukraine and the Philippines.
While plunging house prices have caused well-documented problems here, rising prices are also leading to widespread angst in Germany and Brazil, where many people have been priced out of the market and rents are soaring -- creating challenges for policy makers and worries about inequality.
The IMF working paper finds that Irish prices are no longer misaligned, but are still more expensive than countries such as Germany when wages and other factors are taken into account.
Australia, which is enjoying a commodity-inspired bubble, has the most "misaligned" prices in the world, according to the study of 54 countries.
While many believe that our house price collapse was the worst in the world, the IMF study suggests that Estonia holds that distinction.
House prices fell further in Estonia, the Ukraine and Lithuania.
However, declines here have continued for longer than most other countries, which means that we may yet chalk up the worst bust in history.
The report says that house prices in the US have started to pick up a little recently, but globally prices are still on a down trend. While overall the trend is mixed, there is no sign of an uptick in the global index of house prices.
The findings suggest that long-run price dynamics are mostly driven by local factors such as income and population growth. The effect of more globally connected factors such as interest rates appears to be less strong.
Credit market conditions can have an impact in the short run and, ultimately, when the correction starts, affect both financial stability and the overall economy.
House price growth can be explained by several short-run factors, such as growth in incomes, asset prices, and population, and long-run-factors, such as the ratio of house prices to incomes.
The difference between actual house prices and those predicted on the basis of these fundamental factors gives another indication of whether prices may have more room to fall.
- Thomas Molloy