Finance Bill sets mortgage threshold for help-to-buy scheme

The mortgage threshold for first-time buyers looking to apply for a rebate under the new help-to-buy scheme has been reduced to 70 per cent of the value of the home in the Finance Bill.

The Government reduced the figure from the 80 per cent announced in the budget last week after intervention by the Central Bank, which was concerned that it would encourage young homebuyers to take on excessive debt.

There has been no change as yet in other elements of the rebate scheme. However, it is expected that the Government will introduce an amendment to the Bill as it passes through the Oireachtas lowering the €600,000 upper limit on the value of homes eligible under the scheme.

Rebate

As it stands, first-time buyers can apply for a rebate of income tax paid over the four completed tax years prior to purchase up to 5 per cent of the value of the home, or €20,000, whichever is the lesser.

That effectively limits the 5 per cent rebate to properties worth €400,000 or less. Homebuyers can still avail of the relief on properties worth more than that but get no further relief. If the property is worth more than €600,000 – or whatever lower limit is eventually agreed – no relief is available.

The properties bought must either be newly built or self-built by the first-time buyer, and the buyers must have signed a contract on or after July 19th last, or, in the case of self-builds, drawn down the first tranche of their mortgage on or after that date.

A couple buying a €400,000 home require a deposit of €58,000 – 10 per cent on the first €220,000 of value and 20 per cent on the balance. Even with a maximum rebate, they will need to find €38,000 for their deposit.

Applications for the rebate will require the filing of tax returns for the years in question even for PAYE earners who might not, until now, have filed such returns. Revenue will start accepting applications on January 1st, 2017, and will outline the application details required before then.

There will also be a clawback arrangement, blocking homeowners from vacating the property for at least five years after the purchase – for instance to rent it. However, they can avail of the potential €14,000 a year available under the rent-a-room scheme.