Mortgage guarantee scheme should be put on hold – Savills


Postponing the proposed Government-backed mortgage guarantee scheme is one of several recommendations included in a pre-budget submission from property consultants, Savills Ireland.

In its submission, Savills argues that providing house-buyers with more money to compete for a fixed supply of properties could fuel further inflation in the housing market.

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Dr John McCartney, Economist and Director of Research at Savills said;

“With housing supply effectively fixed in the short run, all that will be achieved by giving buyers more money to spend on housing is further inflation. The risk is that this could feed through to expectations of further price growth and the re-inflation of a housing bubble. However, the case for such initiatives could be re-examined in 12 months’ time when we have greater clarity on the supply of mortgage finance and new homes construction.”

In its submission, Savills emphasises that the focus of Government policy should be on facilitating the delivery of additional new homes as quickly as possible.  To achieve this, Savills reiterates its earlier recommendations to cut development levies and VAT on new homes;

Reduce VAT on New Homes for 2 Years (2015 & 2016)

VAT on new homes should be reduced from 13.5% to 9%. This would make marginal housing schemes viable for developers, helping to kick-start construction.  This concession should be strictly time-bound to focus minds and ensure rapid delivery.

Reduce Development Levies

Savills recognises that development contributions are not directly set by the Department of Finance.  However, in the interests of presenting a comprehensive package of property-related measures, it recommends that levies in Dublin be reduced in-line with the decline in overall house prices. Again, this will help to make development viable and facilitate the delivery of new homes.

Other recommendations in Savills pre-budget submission include measures to incentivise downsizing and achieve a more intensive utilisation of the existing housing stock;

Removing Stamp Duty on Purchases Made After Downsizing

Many family homes are currently occupied by couples and single individuals. Conversely, many growing families are trapped in smaller housing units. Better matching would allow more intensive utilisation of the housing stock, but transactional activity is needed to facilitate this. Stamp Duty is a tax on transactions which militates against the turnover of properties. It should be eliminated on owner-occupier purchases of one and two-bedroom units arising from the previous sale of a larger family home.

Exempting Downsizing Proceeds From Gift Tax

Gifts up to a certain value can be made between parties without the recipient incurring a tax liability.  However, the exemption limits have been dramatically reduced since 2009. Downsizing in the housing market would be incentivised by allowing the entire net proceeds of downsizing transactions to be gifted between family members tax-free. This exemption should apply to gifts between all family members rather than just between parents and children.

Improving Tax Incentives Under The Home Renovation Incentive (HRI) Scheme

Tightening regulatory standards have removed up to 6,000 pre-63 bedsits from the market.   Many of the large Victorian and Edwardian properties that contained these units are now redundant as they cannot be let in their current form and the spending required to return them to owner-occupation is prohibitive. To accelerate the return of these and other vacant properties to productive use, the ceiling for qualifying capital expenditure under the HPI scheme should be doubled to €60,000. In addition the HRI tax credit should be payable in the year after the works were carried out rather than over the following two years as at present.

Stamp Duty Rebate for Properties Returned to Residential Use

Reflecting the preferences of modern businesses, vacancy rates in period Dublin offices are stubbornly high. The cost of restoring these converted properties back to domestic use can be prohibitive. To make it more affordable for owner-occupiers and investors to do this the difference between the 2% commercial stamp duty paid at the time of purchase and the standard 1% residential stamp duty should be redeemable after conversion back to domestic use.

The full submission can be viewed here:

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