GUIDE TO BUYING A PROPERTY
HOW MUCH CAN YOU AFFORD?
To help you with this you should seek the advice of a mortgage advisor in a bank or building society as soon as you can. Get as much information as possible, for example:
- Repayments? How much will you be paying back each month?
- Type of mortgage?
- How long will you be paying it off?
- What is the interest rate? Remember to shop around, a ½ % difference on a lending rate will make a lot of difference when you are borrowing a large amount of money. Fixed or variable rate? The rates can vary quite a lot between fixed and variable mortgages. The term of the mortgage can vary also, most people choosing a 25-30 year loan, although in some instances, finance can be secured for up to 40 years. You can opt for a fixed rate mortgage, usually for 1-5 years, although some lending institutions may offer a fixed rate for up to 20 years. This is popular with some as the repayment figure is set for the chosen period although it should be noted that if the borrower wishes to repay the mortgage during this time or switch to a variable rate mortgage, an "early redemption fee" will be charged. With a variable interest rate mortgage, the amount of repayment can increase and decrease. These changes are related to base interest rates set by the European Central bank.
To give you an indication of the maximum mortgage loan you may be able to obtain, most lending institutions will allow borrowing based on 3.75 times gross annual salary. Gross annual salary is what you earn before tax, P.R.S.I. and any other deductions are made. In a case where two people are working and there are two incomes the usual formula for lending will be 3.75 times the larger salary first gross salary, plus the second salary. For Example: If Ann earns 25,000 and Bill earns 20,000 it would be calculated as 25,000 x 3.75 = 93,750 + 20,000 = 113,750. Therefore the lending institution would lend 113,750.
This will give you a good idea of the amount you can borrow. If you are a first time buyer the banks often have special rates, they may lend you up to 95% of the house price. If it is not your first mortgage they will probably only lend 92%. It stands to reason that if you can borrow only 92% or 95% you should have the remaining 5 - 8% saved. Along with this you will need to cover expenses such as stamp duty, legal fees, registration fees, survey fees etc and we give details of these costs below. However, tax relief is normally available on the interest paid on the mortgage and you should speak to your accountant or local tax office about this.
If the house which you are buying in Ireland is not going to be your main residence and you normally live outside Ireland, there is a greater reluctance on the banks and other financial institutions in Ireland to advance such a high proportion of the purchase price and, in our experience it is unlikely that you will be able to obtain a mortgage for more than 75 80% of the purchase price. In these circumstances, and if you have substantial assets in another country, you may be able to obtain better lending facilities in the country in which you live to finance the purchase of your house in Ireland.
If your circumstances are such that you are having difficulty in obtaining a mortgage, we can put you in touch with specialist brokers, who can sometimes obtain mortgage facilities for applicants who have been turned down by the local banks and building societies. They normally charge a fee of 1%, but have been successful in finding funding in such cases.
Mortgage approval is a valuable asset when shopping for a house, as not only will you know how much you can afford, but it will help speed up the process once you do find your home, in some cases giving you a distinct advantage over other purchasers who are not so organised.
Another way of financing your home is by Shared ownership. This is where a local authority scheme where they will purchase part of your home and you will purchase the rest. A rent is paid to the local authority for their share and you must buy them out before 25 years. They will finance from 25% to 75% of your home. This is especially useful where your income is too low to finance the purchase of a house in this buoyant market. You should contact the Corporation or County Council for further details.
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METHODS OF BUYING A HOUSE
There are three methods - private treaty, public auction and tender.
Private Treaty: The most common method of sale is by private treaty and this will be used by most persons buying their first home. "Private treaty" sales are conducted by negotiation with ourselves, as the selling agent of the property. We indicate the guide price of the property and it is up to you to then make offers to us, based on that guide price. You can ask us to be kept informed of any other offers made for the property. Once your offer is accepted and a sale is agreed on the property, we normally withdraw the property from the market, but the transaction is not secure to either vendor or purchaser until contracts for the purchase have been signed. The vendors solicitor will send the contract to your solicitor, and completion or closing of the sale follows, usually 30 days later, but according to the terms of the contract agreed between the two firms of solicitors.
By Public Auction: Properties advertised for sale by auction by us usually have a "reserve price", which is the minimum price at which the vendor will sell. Although we would disclose whether or not a reserve has been set, we do not usually reveal the amount of the reserve. We may indicate a "guide price", which is our estimate of the likely selling price, but this may have no connection with any "reserve price" which has been set. During the course of the bidding, the auctioneer will indicate if the reserve has been reached, so that all the bidders are then aware that the property is now definitely going to be sold. At an auction, you must be prepared to enter into a binding contract on the actual day of the auction. This means you must have your finances in order - loan approved, title to the property checked by your solicitor and any surveys carried out before you go to the auction. You will have to pay 10% of the cost of the house on the signing of the contract, which is done immediately after the hammer falls at the auction. The balance of 90% is payable on completion of the sale and the date of this will be given in the "Conditions of Sale", which will be available from the solicitor acting for the vendor. It is normal practice, where a property for sale by auction fails to meet its reserve price, for the auctioneer to then negotiate only with the highest bidder at the auction, to see whether a sale between the vendor and that bidder can be negotiated and agreed.
For Sale By Tender: This method is used mainly by public bodies and for commercial property, but rarely for residential property. The vendors agent invites offers in writing before a certain date and on a formal offer document. Each prospective purchaser or bidder submits his offer to the selling agent, usually with a bank draft of 10% of his offer, which is cashed if his offer is accepted. Each bidder is not aware what other bidders are tendering and the highest tender is usually accepted.
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PAYING A BOOKING DEPOSIT
It is normal in Ireland for a prospective purchaser, upon acceptance of his offer to purchase the property, to pay a booking deposit, which is normally around 3-4% of the agreed purchase price. When this deposit is paid you will receive a receipt, which is marked "Subject to Contract" and we hold this deposit in a separate Client Account and cannot part with it until instructed by either you or your solicitor when the purchase has been completed. Delays with the payment of a booking deposit can result in an increase of the price either by the builder in the case of a new house, or another bidder in the case of a second hand house. However you should bear in mind that even though a booking deposit may have been made, either party can withdraw from the transaction at any time before the contract is signed. If for any reason the sale of the property should be cancelled before contracts are signed, the booking deposit will be refunded to you in full.
Spencer Auctioneers is a licensed firm of Auctioneers and Estate Agents, fully bonded by the Irish High Courts and, like other similar firms, have to meet fairly stringent fiduciary and financial requirements to obtain the renewal of their license each year.
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BUYING A NEW HOUSE
The price quoted for a new house is generally not negotiable. We will have been informed by the builder of the selling price of each house and should be able to let you have full details as to what is included in the price and what is not. Houses in larger developments are normally built in phases, and released onto the market accordingly, when the price is set for each house in that phase.
It is also common, when purchasing a new house, for the builder to require you to make stage payments as the work progresses. The builder would be able to give you details of each payment required at various levels of building the house, e.g. when the foundations are laid, when the construction has reached first floor level, etc. If you are not able to check on the construction of the house yourself, it is advisable to have an engineer confirm to you that the construction has reached the stage stated by the builder before making each stage payment.
With any new house you should enquire exactly what is included and what is not included in the price which should be fixed at that time. Most builders would include driveways, pathways, interior and exterior painting and some will also provide a fitted kitchen, fireplaces, bathrooms and shower rooms, and tiling in the price quoted. Alternatively some builders, if not including the above items, will make an allowance for the kitchen, bathrooms, tiling etc and this should be stated in the details given to you. The allowances are normally the amount which the builder anticipates would be the cost of providing the basic item. For example, an allowance for bathrooms made be to provide the most basic form of bath, wash basin, toilet, etc. If, however, you want a specific type of bath or a colour which would be more expensive, you can ask the builder to install these for you. He will charge you, as an extra cost, the difference between the item which you have chosen plus any additional labour costs and the allowance which he has already indicated that he would give. In addition to the costs which you will pay the builder you will normally have to have to pay to have lawns laid, fencing etc as well as the cost of any other changes which you want to make to the house which is being built for you.
The main advantage of buying a new house, if you are to occupy it yourself as your main residence, is that you will have exemption from stamp duty if the house is under 125 sq. m and if above that size, it should qualify for quarter relief. This is where stamp duty is charged on the site value or one quarter of the total value of the property, whichever is greater. The advantage of a new house is that there should not be any need for any substantial expenditure on maintenance or structural repairs for many years to come. Many builders, and particularly builders of estates of houses will belong to Homebond (previously National House Building Guarantee Scheme) who will provide a 10 year structural guarantee scheme. If the builder from whom you are buying the house does not belong to Homebond, the normal practice is for his construction of the house to be supervised by a suitably qualified engineer or surveyor. In rural Ireland, this is perfectly acceptable to nearly all the main banks and other lending institutions.
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BUYING AN EXISTING HOUSE
An existing or "second hand" house will have a guide price and this may be stated to be "Offers on £XXX" or similar wording. You can make any sensible offer to us as agents, and whether or not your offer is accepted will depend on how much interest there is in the property and the instructions to us from the vendor. If a property has been on the market for quite a long time, some vendors may consider offers substantially below the guide price, but each case depends on its own circumstances and many properties sell for amounts higher than the guide price. Some vendors, if not in a hurry to sell, may want to hold out for the price stated, irrespective of how long it takes to achieve that price.
Our staff will let you know whether or not your offer is likely to be considered as acceptable by the vendor, and we will also disclose any other offers which have been made on that property. Contrary to practices in some other countries, we do not "invent" offers and only disclose an offer if we have received a genuine offer of that amount. However, you should remember that, as we have mentioned above, many properties will achieve their asking price and sometimes a significantly higher price. Although we try to give as much help as possible to prospective buyers, we are acting for the vendor and in accordance with their instructions.
When you make an offer on a property, you should state on what conditions your offer is made, for example, "Subject to Survey" or "Subject to Loan Approval" or "Subject to selling existing property". It is advisable for your offer to be as simple as possible, since an offer with too many conditions may be unattractive to the owner of the property and will compare unfavourably with other offers with less conditions. It is therefore strongly advisable to have a structural report carried out on the property first so that you know how much you can afford to pay for the house as well as a costing on repairs, if any. Similarly you should try to have your finance arranged in principle and also have any existing property either "Sale Agreed" or at least on the market before you make an offer. If you find yourself in competition with other bidders for the property of your choice, the better prepared you are may make your bid more attractive to the vendor than a higher bid from someone not so well prepared. If you are unfamiliar with buying property in Ireland, you can alternatively ask your solicitor to do the bidding for you and in most cases he will charge you the same fee whether you see him on day 1 or day 10.
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SURVEY AND VALUATION
Your lending institution will want a valuation of the property to make sure that the property is good security for the money they are lending. This usually costs around 127 but it is important to remember that this is not a structural survey. A full structural survey should be carried out by a suitably qualified person such as a surveyor or engineer. This is most important whether you are purchasing a new or existing house. It costs more than the valuation report and is usually in the region of between 300 and 500.
In the case of a newly constructed house it is wise to have an engineer to look over the construction in its various stages. On completion of the house the engineer should prepare a snag list as it will be inevitable that small items will be forgotten or need to be remedied. The final payment should not be paid over until your surveyor is satisfied that the items on the snag list have been completed. The lending institution will get their own engineer to inspect the site plans, house plans and specifications and he will also visit the site and inspect the house on completion.
If you need the services of a surveyor or engineer, we have on file a number of engineers whom we would recommend and will be pleased to put you in touch with one of these depending on the area in which you propose to purchase a property.
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OTHER COSTS OF BUYING A HOUSE
You will need the services of a solicitor for virtually any property transaction conducted in Ireland and, like most major cities, Galway has a wide selection. There are also solicitors practicing in most of the other towns in the area and, should you not already have a solicitor acting for you, we will be pleased to provide you with a number of recommendations. There are other costs involved in buying a house. In relation to legal fees, your solicitor should give you a total breakdown of all fees and expenses so that you are well prepared in advance. Irish Law limits the maximum legal fee for the purchase of property to 1% of the purchase price plus 127 plus VAT at 23%. In addition you may have to pay stamp duty on the purchase price of the house (see below), registration and search fees of upto 444, stamp duty on any mortgage, probably mortgage protection life insurance, and if the house is furnished, home contents insurance. You will not have to pay any agents fees, as all our fees are paid by the vendor and no charges are made by us to purchasers.
We can also supply you with the names, addresses and telephone numbers of builders, plumbers, electricians and most other types of tradesmen to deal with most aspects of buying, building or maintaining property here.
When seeking a connection for water supply or electricity to a new property there are one-off connection charges to either mains water or a supply from a group water scheme and these are usually in the range of 635 - 726. Similarly there will normally be a one-off connection fee in respect of electricity and this is usually in the region of 1,020.
In towns and many villages the sewage and waste water from the properties in that area is piped in to a mains sewer which leads to a community sewage treatment plant. However, in the rural areas no such facilities exist and the common practice is to install a septic tank with a percolation area which costs approximately 2,539. Following various European Directives, there is a growing trend in areas with close proximity to existing water courses such as streams, rivers and lakes, for waste water treatment systems to be installed in place of septic tanks. The requirement to do this is laid down by the local authority, either Galway or Mayo County Council. Waste water treatment systems, which are in effect a mini sewage treatment plant, are provided by a number of different competing suppliers and usually cost approx. 6,348. The decision as to whether a particular house site requires a septic system or a wastewater treatment plant will depend on the ground conditions and the proximity to water courses.
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STAMP DUTY: BUDGET 2011
The Minister for Finance announced the following changes in relation to stamp duty in his Budget speech on 7 December 2010.
New Rates for Residential Property
A new lower rate of 1% will apply to instruments where the consideration attributable to residential property does not exceed 1,000,000. A higher rate of 2% will apply to the excess of the consideration over 1,000,000. In conjunction with the introduction of the lower rate of 1%, which will apply to the entire amount of the consideration up to 1,000,000, the current exempt threshold of 127,000 has also been abolished.
These new Stamp Duty rates apply to all contracts executed on or after 15th October 2008
|Budget 2011, Stamp Duty Charges Effective
8th December, 2010
||Rate of Duty
|Excess over 1,000,000
In the case of a mixed property the consideration must be apportioned, as provided for in section 45(2) or section 52(5) of the Stamp Duties Consolidation Act 1999, on a just and reasonable basis between the residential and non-residential elements of the property.
A surcharge can arise under section 16 of the Stamp Duties Consolidation Act 1999 where the apportionment is not just or reasonable.
Aggregation continues to apply in determining the stamp duty liability where a transaction forms part of a larger transaction or of a series of transactions involving residential property. The stamp duty liability is calculated on the basis of the aggregate consideration for the entire residential property and the duty is then apportioned between the separate properties which are transferred by separate instruments and the apportionment is pro rata to the consideration for each property.
Relief and Exemptions abolished
The following reliefs and exemptions have been abolished.
- Section 83A of the Stamp Duties Consolidation Act 1999 this exemption applied where a site was transferred by a parent to a child for the purpose of building a house for occupation by the child.
- Section 91A of the Stamp Duties Consolidation Act 1999 this exemption applied to the purchase by an owner-occupier of a new house or apartment where the floor area did not exceed 125 square metres.
- Section 92 of the Stamp Duties Consolidation Act 1999 this relief applied to the purchase by an owner-occupier of a new house or apartment where the floor area exceeded 125 square metres.
- Section 92B of the Stamp Duties Consolidation Act 1999 this exemption applied to a first time purchaser who acquired a house or apartment for owner-occupancy.
- Consanguinity Relief provided for under Schedule 1 of the Stamp Duties Consolidation Act 1999 this relief will no longer apply to residential property but will continue to apply to non-residential property.
The above changes will apply to instruments executed on or after 8 December 2010 subject to the transitional arrangements referred to below.
Transitional arrangements will apply where, as a result of the new rates or the termination of the reliefs or exemptions, a taxpayer is disadvantaged compared to the stamp duty treatment applicable prior to 8 December 2010. The transitional arrangements will apply where an instrument is executed on or after 8 December 2010 and before 1 July 2011 solely in pursuance of a binding contract which had been entered into prior to 8 December 2010.
To avail of the benefit of the transitional arrangements, the instrument should contain the following certificate:
It is hereby certified that this instrument was executed solely in pursuance of a binding contract entered into prior to 8 December 2010.
NON - RESIDENTIAL PROPERTY (Commercial & Sites)
The position in relation to stamp duty on non residential property has not been changed in Budget 2011 and any reliefs/exemptions which were available in this respect continue to be available in 2011.
Stamp duty on non-residential property, e.g. shops, offices, sites, etc is at the following rates:
||Rate Of Duty:
|Up to 10,000
|10,001 - 20,000
|20,001 - 30,000
|30,001 - 40,000
|40,001 - 70,000
|70,001 - 80,000
It should be noted that in leasing property stamp duty also arises. If the lease does not exceed 35 years or is indefinite stamp duty charges are at a rate of 1% of the average annual rent. If there is a rent review clause in the lease an additional fixed duty of 12.50 is payable
If a "premium" otherwise know as "key money" is paid for a lease, this is also liable to Stamp Duty.
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Spencer Auctioneers, Main Street, Oughterard, Co. Galway, Ireland.
Tel: +353 91 552999 / Fax: +353 91 552990
Email: email@example.com / Web: www.spencerauctioneers.com