bonkers.ie Looks Closer: 6 tips to help you get your mortgage deposit together
Getting on the property ladder is a struggle for many first-time buyers as they grapple with high rents while also trying to save for a mortgage deposit. And unless you're hoping to come into an inheritance (and have some very old and sick relatives!) then hard choices lie ahead.
However, there are a few things you can do and should know about to try make it easier, which we discuss in this podcast with our Head of Communications, and recent home buyer, Daragh Cassidy.
Here’s a breakdown of what was discussed by Daragh and Rob in this episode.
What can first-time buyers do that will help them save for a deposit?
It’s always been tough to save for a deposit, but since the new Central Bank mortgage lending rules came in to require borrowers to have a 10% deposit, it’s become more difficult for most people.
Of course there’s also the issue around rent. It’s more expensive to rent than it is to buy in many cases, so people are trying to grapple with really high rents while trying to save for a deposit.
There are some supports along the way and some government help. Here are 6 tips to help you get your mortgage deposit together.
1. The Help to Buy Scheme
The Help to Buy Scheme is a tax rebate scheme designed to help first-time buyers get the deposit needed to buy a newly built home.
To avail of the Help to Buy Scheme, you have to have paid a certain amount of tax. The Government will give you a maximum 10% of the value of the property or €30,000 - whichever is lower.
The scheme used to be a maximum of €20,000 but it was recently changed by the new Government.
In order to claim, you must have paid the equivalent amount of income tax and/or Deposit Interest Retention Tax (DIRT) in the preceding four years. Any PRSI or USC wouldn’t be included.
Most people who have lived and worked in Ireland over the past four years will not have paid enough tax, unfortunately, to qualify.
Theoretically, if you had your eye on a home for €300,000 you would need a €30,000 deposit. Technically you could get the deposit through the scheme.
It’s been a bit controversial as some people don’t think it’s helped to put the right money into the right people’s hands and that it’s actually pushed prices up.
The higher rate of €30,000 has been extended until December 2021.
How can I apply?
You can apply for the Help to Buy Scheme online through Revenue’s MyAccount service.
Can people reapply under the new scheme?
If you have yet to sign a contract for your new home or if you have a self-build mortgage and have yet to draw down the first tranche of your mortgage, you are able to apply under the higher rate.
You can reapply for the higher rate through Revenue.
2. Mortgage exemptions
The Central Bank lending rules state that you can only borrow 3.5 times your salary and you have to have a 10% deposit. However there are exceptions to those rules.
A huge amount of the media focus tends to focus on the loan to income exemption. In any one year at the moment, a bank is allowed to give out up to 20% of mortgages for first-time buyers above the 3.5 times limit. Some can get up to 4.5 times their income.
Another exemption that many don’t realise that banks can give is an exemption to the deposit limit. In many cases, people struggle to save the deposit amount while paying rent.
In any one year, 5% of mortgages to first-time buyers can have a deposit of below 10%, provided you meet other lending criteria.
You can’t get both exemptions though. It’s usually one or the other.
Chat to your bank or mortgage advisor or broker to learn more about mortgage exemption rules.
3. Mortgage cashback deals
Cashback deals can be a little bit controversial for some people as people think they’ll lead to higher rates.
A lot of banks, such as Permanent TSB, Bank of Ireland and EBS, will give you cashback on your mortgage of up to 3% in some cases. They’ve become very popular and it’s very much an Irish thing, you don’t see it elsewhere really.
PTSB will give borrowers up to 2% cashback upfront. BOI will give 2% cashback upfront and another 1% after 5 years if borrowers choose to pay their mortgage from a BOI current account. EBS will give 2% and another 1% after 5 years, but there’s no requirement to pay your mortgage from an EBS current account.
While the rates on these cashback deals tend to be higher over the long term, there’s a lot to be said as a first-time buyer getting a cashback lump sum to help with the costs of solicitor fees, stamp duty, etc.
Anecdotally some people go to the bank of Mam and Dad for a lend of €5,000 to help with the house deposit. Quite often they pay back their parents when they get the cashback offer.
You can use our mortgage calculator to review available mortgage offers from Ireland’s main providers.
You can also switch your mortgage down the line. You could avail of a cashback offer from a bank and then switch after a few years. You don’t need to pay back the cashback received from the original bank.
People often don’t review their mortgage, despite the fact they could save a significant amount in the long run.
4. Avail of a tax refund
According to one of the main independent providers of tax refund services, the average refund for anyone who looks into their tax affairs is in the region of €900-1,100.
It won’t get you a deposit overnight, but it’s extra money that some people don’t know about.
It’s quick and easy to apply for a tax refund on Revenue online. You can also use a tax refund service, but they will take a percentage as a fee. It’s just as easy to do it yourself.
You can only claim for four years in arrears, so make sure you keep receipts. It’s best to submit the tax return yearly in early January.
Even putting away €50 a week would add up to around €2,600 at the end of one year. If you’re in a couple, that’s over €5,000 and that’s before any interest rates.
You need to demonstrate some element of saving when applying for a mortgage. Even if you’re gifted your deposit, a bank wants to see that you can save and manage money effectively. The bank wants evidence of regular saving habits.
If you’re saving a certain amount, you should have a standing order that goes into a savings account or a credit union account.
However with interest rates on savings accounts being at an all-time low, you may be looking for other, less traditional ways to save, so check out our bonkers.ie podcast episode on alternative savings options.
6.Get more money savvy
You want your money to work as hard for you as you work for it.
People need to micromanage their finances and spending. Once you get a mortgage and are a homeowner, you will need to budget anyway, so get into the habit as early as possible.
Start by reviewing your bills. The easiest way to start saving is by switching gas and electricity. Someone could save between €400-500 a year by switching energy suppliers.
If you’re still in contract and don’t feel like switching energy supplier but would still like to save on your bills, check out these 15 ways to use less electricity and save money.
If you have friends who are in the same situation, consider going into a bubble and doing the same things together. You may have friends who already have a mortgage and are financially comfortable who want to go out all the time while you’re scrimping and saving.
Review your everyday spending habits. For example, do you buy a coffee each morning when it could be more economically feasible to buy a coffee machine?
Everyone has to make sacrifices in the run-up to buying a home.
Take a look at our mortgage guides
The mortgage journey can be long and complicated, so we want to make it easier. We’ve compiled a list of helpful articles and guides that may be of benefit to you:
- If you’re considering applying for a mortgage and are confused about mortgage rates, have a look at our explainer on mortgage interest rates.
- Once you’re familiar with mortgage interest rates, you can discover the pros and cons of variable and fixed rates here, so you can decide what rate best suits your needs.
- When applying for a mortgage, you’ll want to minimise mistakes. Here’s a list of 9 mistakes to avoid when applying for a mortgage.
- You may have noticed that green mortgages are rising in popularity. Here’s a breakdown of what exactly a green mortgage is.
And when it’s time to apply for your mortgage, you can submit an online enquiry through our new mortgage broker service and one of our experienced financial advisors will call you back to get your application started.
Our mortgage service is entirely free and is fully digital from start to finish, meaning everything can be carried out online from the comfort of your home. And it's completely paper-free too!
To find out more about our mortgage broker service, see here.
Are you feeling overwhelmed about saving for a mortgage deposit? If you have any questions, we’d be happy to help answer them.