Frequently Asked Questions

Mortgage & Finance

• Top Tips
• Which lender provides the cheapest mortgage rate for investment property?
• What is the tax position?
• Borrow 100% on the investment property and use the deposit to reduce your home mortgage
• But am I not putting my home at risk?
• What Stamp Duty do I pay on an Investment Property?
• What expenses can I claim?
• What expenses can I NOT claim?
• What if i make a loss?
• What about Capital Gains Tax?

Top Tips

You get tax relief at your top rate on a mortgage for an investment property, so pay off your home mortgage before paying off your investment mortgage.

Investment property is not risk free. House prices are not guaranteed to continue rising forever. If you borrow to invest in property, make sure you can handle a serious downturn in prices.

Property is a long term investment due to the high transaction costs.

A mortgage broker such as Ferguson & Associates or Rea will get a commission from the lender and may split it with you or cover part of your legal costs. Check out the cheapest lender yourself and then talk to a mortgage broker.

Be very careful about investing in property overseas. It is very easy to get ripped off if you don't know the market and if you are not on hand to fix the problems.

Which lender provides the cheapest mortgage rate for investment property?

Currently First Active, IIB, ICS and Irish Permanent will all lend on one investment property at homeloan rates. First Active, IIB and ICS will do interest only for the first five, three and 10 years respectively.Bank of Scotland don't lend on investment properties; AIB load their homeloan rate by 0.5%.
Information supplied by Sarah Wellband of www.rea.ie

What is the tax position?

Your tax return will be something like the following:
Rental income………….€12,000

Expenses
Mortgage interest………€ 8,000
Decorating & repairs…..€ 1,000
Insurance……………….€ 500

Taxable profit…………..€ 2,500

Tax at 42%……………..€ 1,050
PRSI at 5%……………..€ 125

Borrow 100% on the investment property and use the deposit to reduce your home mortgage

As you can see from the example above, you get full tax and prsi relief on the mortgage interest paid. So you should repay your home mortgage first.

Say you have a mortgage of €100k on your home which is worth €300k. And you want to buy an investment property for €200k, for which you have a deposit of €40k. You need to borrow €160k.

Home………….300k….less mortgage……100k……equity……200k
Investment…….200k….less mortgage…….160k……equity…….40k

You would be better off paying the €40k off your home mortgage and borrowing €200k on your investment property. Your total borrowings will still be €260k, so nothing has changed.

The lender will require a cross mortgage on both properties, but that is not a problem.

But am I not putting my home at risk?

If you borrow to invest in property, you are putting your home at risk, whether you secure it against your home or not. If property values fall and your investment mortgage is higher than the property value, you can't just hand back the keys to the lender and walk away. You personally owe the money and the bank will get a judgement against you for the amount due.

Having a separate mortgage for the investment property provides no extra security.

What Stamp Duty do I pay on an Investment Property?

• Up to €127k……….0%
• €127k to €190.5k….3%
• €190.5k to €254k.…4%
• €254k to €317.5k….5%
• €317.5k to €381k….6%
• €381k to €635k……7.5%
• €635k+…………….9%

Investors pay these rates whether the property is new or second hand.

What expenses can I claim?

In calculating your taxable profit, you will be allowed deduct any expense incurred wholly, exclusively and necessarily in the letting of the property:

• interest paid
• depreciation of furniture and equipment (12.5% p.a. over 8 years - previously 20% p.a. over 5 years - see here).
• insurance
• maintenance
• payments to a letting agency
• refuse charges
• maintenance
• legal fees in drawing up leases

What expenses can I NOT claim?

The following expenses are not allowed:

• Costs of buying the premises e.g. legal costs, stamp duty
• Cost of furniture and equipment
• Pre letting expenses: e.g. decorating the house prior to the first tenant.( decoration between tenants is allowed)

What if i make a loss?

If your expenses exceed your rental income, you can carry the loss forward against future rental profits. You cannot claim it against your PAYE or other income.

What about Capital Gains Tax?

You will pay 20% CGT on any profit you make when you sell the house. The profit is calculated as the net sales proceeds less the cost of acquisition. The cost of acquisition includes legal fees and stamp duty and any pre-letting refurbishment or decoration for which an income tax deduction was not claimed.