Blog – McCarthy & Associates – Galway Talks, 14/08/2014

galway-bayfmIssue:  Government introduces new legislation to protect homeowners, where their mortgage has been sold to an overseas fund.

Comment:  Finally the government has announced that legislation will be enacted by the end of the year which will ensure that all institutions who have loan books in Ireland, whether they are based overseas or not, will have to adhere to the Code of Conduct laid down by the Central Bank.  An anomaly has arisen recently whereby overseas funds who purchased the domestic mortgage books from the likes of Anglo, Irish Nationwide etc. do not have to adhere to this Code of Conduct, although some have said they will voluntarily do so.

As we have often seen in the banking sector, voluntary adherence does not work and it is only when legislation forces institutions to ‘tow the line’ that it seem to do so .

Question:  I have looked at a number of investments and they all are subject to DIRT.  Do you know of any others, so I can reduce any tax I might pay if I make money? 

Answer:  Most investments are subject to DIRT at 41% (+ PRSI).  In the last few months a number of other options have been launched which are called Soft Capital Protection Bonds which are subject to Capital Gains Tax at 33%.

Whilst Soft Capital Protection Bonds do not provide full guarantees they do however offer some element of protection.  You will see below a comparative table showing the benefits of Capital Gains Tax over DIRT on an assumed gain of €10,000

DIRT  –  41%

PRSI

Total Tax Payable

€4,100.00

€   500.00

€4,600.00

 

 

Capital Gains Tax  –  33%

Less Annual Allowance

Total Tax Payable

€3,300.00

€1,270.00

€2,030.00

Issue:  Recent research shows 50% of houses purchased funded with cash.

Comment:  Recently PWC undertook a survey where they compared the number of house sales against the number of mortgages granted.  They came up with a conclusion that 50% of house purchases are financed with cash.  Despite the considerable media comments by various banks, that they are lending, these figures suggest that they are not putting enough resources into providing mortgages.  A further factor has been the very tight lending criteria for people to qualify for a mortgage.

We need to see far greater increased mortgage lending from the banks to bring it back to more normal levels.  There are a lot of people renting who wish to buy their home but find they cannot obtain finance.  A loosening of the lending criteria, would not alone help the housing market, but also in time will stabilize the rental market, as more people move into the homeowner sector.

Issue:  Government backing away from Mortgage Support Scheme?

Comment:  Unfortunately we have seen to often in this country, where Government makes announcements about bringing in measures to help certain sectors and then back away from it.  Earlier this year, saw the publication of a document which outlined support for the Construction Sector over the next few years.  One of the elements included in this was the possibility of providing some form of guarantee to the banks in relation to their mortgage lending, so as to kick start this sector.

It now seems, from recent press reports, that the Government is backing away from this idea entirely.  I only wish that in future they would not make such announcements until they having clearly researched what they intend to introduce and not lead unsuspecting house purchasers into a “false dawn”.

Issue:  40% of people now saving on a regular basis.

Comment:  Confidence is returning to the Irish “psyche” evidenced by the fact that more people feel are saving on a regular basis, as some have excess income to be able to do this.  Ultimately some of these savings will be utilized through spending which obviously is economically beneficial.