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Q. I have a tracker mortgage with one of the main banks. It will be one year old shortly. My wife and I have saved €15,000 over the last year. We would like to pay this off against our borrowings to reduce the interest payments. Is there an optimum time to do this?
A. The first thing I would do in your case is arrange a meeting with your mortgage advisor at the bank. Provide details of the amount you wish to offset against your mortgage and ask that they provide details of the benefit to you of reducing your mortgage by this amount and the interest that will be saved over the long term. The timing of this is not majorly relevant but if you are determined to go ahead with offsetting it against your mortgage you should obviously do so as soon as possible.
If you are in a position to save this amount over a 12 month period you could also consider increasing your monthly repayments to reduce the capital amount month by month rather than paying off a lump sum at the end of the year.
Again you could consult with your advisor and ask if it is possible to do this on an ad hoc basis rather than tieing yourself into a definite amount or time as your circumstances may change at any stage and you might not wish to continue with the additional payments.
My understanding is that most of the banks are quiet flexible at present with regard to mortgage repayments so you should not have a problem once you understand the options.
Q. My husband and I are very interested in a house in West Cork as a holiday home. Unfortunately it is a Section 23 property. We currently do not have any plans to buy a third property to avail of the relief. Houses in the area do not come up for sale very often. I understand that the house would have to be let for 6 months of the year etc for 10 years. Is there a premium price for these houses because of the Section 23 relief. Do people who do not have any rental income buy these houses. I would appreciate your advice.
A. Section 23 properties in general are more beneficial to individuals with existing rental income as the allowances available with these properties can be offset against the rental income from the Section 23 property itself and other rental income thereby effectively giving the individual tax relief at their marginal rate.
For individuals who utilise the Section 23 properties for tax relief the cost of the property is effectively reduced by the amount of tax relief they receive over the period and in some instances the cost of the property may reflect this.
In your own case you mention that the property you were looking at would have to be let for 6 months of the year. This would indicate that it is set up under a scheme for holiday homes and an additional requirement for this is that there must be a certain number of houses within the scheme which are available on this basis.
If the promoters/developer already has the required number of people interested in the scheme to allow the project to go ahead and obtain tax relief for the investors who require it then you may be in a position to purchase the property without using it as a rental property and you could use it for your own purposes.
Your initial contact is therefore to the promoter and you would need to question if this would in fact be allowed. Unfortunately it is unlikely that your decision not to use the property for tax relief purposes will result in a reduction in the price but this of course is something you will have to consider based on your desire to have a property in the area.
Good Luck with your decision.
Phil Lynch
6 Lapps Quay, Cork.
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