The allure of owning a vacation home was amplified in the summer of 2021 as pandemic restrictions on international travel prompted city dwellers to explore the beauty of their own country. Buoyed by savings accumulated during lockdown, home seekers this year have continued to snap up everything from crumbling cottages in West Clare to historic homes in West Cork.
o Sherry FitzGerald’s Catherine O’Reilly, Wicklow real estate agent, recalls an exciting summer of bidding in Brittas Bay. In one case, four couples repeatedly outbid each other for a three-bedroom vacation home in Brittas Bay Village, a gated community near the sand dunes and beach.
The tender meant that the final buyer paid €90,000 over the asking price of €325,000.
“We had all just come out of Covid, the sun was shining and people had tons of savings and were dying to spend them,” says O’Reilly. “Is it next summer? It’s hard to know.”
As the economic clouds darken and the cost-of-living crisis tightens its grip, an ambitious home purchase on a warm summer’s day could prove more trouble than it’s worth for all but the wealthiest of households for years to come. Here are some factors to consider to determine if you can continue to afford your vacation home.
While nine out of ten vacation home purchases processed by O’Reilly were paid for in cash, many homeowners across the country have taken out a second mortgage or increased the mortgage on their primary residence to pay for their dream vacation home.
The European Central Bank has already raised interest rates by 1.25 percentage points this year, and further rate hikes are expected later this month and in December.
If you have an adjustable rate and your mortgage still has a few years to go, it’s not too late to switch to a fixed rate.
Also, consider whether you would be content to keep your vacation home if its value plummeted and you were unable to sell it for the price you paid for it.
The housing market has started to cool and the Economic and Social Research Institute said earlier this month that prices were overvalued by at least 7 percent.
If you only use your holiday home for two or three weeks a year, you will have to pay a vacancy tax on it after the measure was announced in this month’s budget.
While vacation homes aren’t the primary target of the new tax, all vacant properties here and in other countries tackling a housing crisis will come under closer scrutiny to encourage owners to sell or rent unused homes. Similar taxes were introduced in Melbourne, Toronto and Vancouver.
As part of the vacancy tax that is due to be introduced next year, your second home is considered vacant if it is unoccupied for less than 30 days out of 12 months.
The tax, assessed and administered by the Revenue Commissioners themselves, is based on Local Property Tax (LPT) declarations. The levy is three times the amount you pay in LPT.
For example, if you own a second home in Roundstone, Co. Galway you would be in LPT valuation band 4 which ranges in value from €350,001 to €437,500.
If you leave your Roundstone home vacant for all but three weeks of the year, you will not only have to pay €405 LPT, but €1,215 in property tax.
In total, this home could cost you €1,620 in two property taxes each year. This precludes the application of the local adjustment factor, whereby your municipality can increase or decrease the LPT rate by 15 percent.
This tax alone should not encourage owners of little-used homes to resell them. However, its introduction “will make it easier to optimize the tax in the coming years,” says tax advisor Maura Ginty of Gintax.
“We don’t yet know how the tax office will monitor it to determine how many days a year someone is in their holiday home. In theory, it has far-reaching powers. If you are very concerned about this I would recommend getting receipts every time you are at your holiday home e.g. B. when you do your grocery shopping at the local SuperValu or go to the local gas station.”
O’Reilly does not expect the property tax to be levied on purpose-built holiday homes like Brittas Bay Village because Wicklow County Council has determined that they cannot be purchased as a primary residence and that owners must make their properties available to the rental market for two weeks a year.
operating and maintenance costs
Operating and maintenance costs for a holiday home can add up – especially in times of the energy crisis.
For example, the latest price increases from SSE Airtricity, which came into effect earlier this month, mean the average household customer will pay €1,000 more for their gas and €1,100 more for their electricity each year.
While you use significantly less energy in a holiday home than at your main residence and will probably receive the €600 energy credit announced in the budget, you cannot avoid the basic fee, which some providers charge at €700 per year. Even the firewood you use for your second home’s fireplace or stove has risen, while coal traders have warned prices could reach €60 a sack this winter.
If you own a petrol, diesel or hybrid car, the second home pilgrimage will also become more expensive thanks to higher diesel and petrol prices.
In September it cost the average motorist with a diesel car €1,940 each year to fill it up – €440 more than the same month last year, according to AA Ireland.
Filling up a petrol car costs 2,234 euros per year, which is 346 euros more than in September 2021.
Whilst those prices are unlikely to be much of a concern if you’re driving from South Dublin to Brittas Bay at the weekend, the cost of regular trips from the city to West Cork would certainly be worrisome.
If your second home is part of a holiday residence or on a mobile home pitch, management fees may apply.
Depending on the development or location, these can cost between 1,200 and 2,000 euros. If it’s a standalone property, you’ll have to pay someone to mow the lawn while you’re away and a handyman to fix roof tiles that have been blown away in a storm.
If the property is in a rural area, you will have to pay to empty the septic tank, or have the exterior of your home repainted every year or two if the property is oceanfront.
It may be worth finding a local caretaker for the property, depending on the fees.
Renting out your vacation home through Airbnb for a few weeks or months when you’re not using it might seem like a nice little earner. Not only do you have to pay tax on this income, you are also not allowed to rent it out at all if the property is in a rent pressure zone (RPZ).
Following recent changes to existing legislation, you must have the correct building permit if you intend to rent this property out for a short term.
“Breaking these rules is a criminal offense that can be prosecuted in district court, where fines of up to $5,000 can be imposed,” said Brendan Slattery, head of the planning and environmental group at the law firm McCann FitzGerald. “A continued offense can be punished with fines of up to 1,500 euros per day. In the case of serious matters, imprisonment is also possible.”
You are unlikely to get planning permission at all for short term rentals – periods of less than 14 days – if your property is in an area of high housing demand. And for short-term rentals of your vacation home for a cumulative period of up to 90 days per year, you will likely need a change of use permit.
“If the area has high rental inflation or an insufficient supply of long-term rental stock, the planning guidelines released by the Minister in 2019 mean permits will be difficult to obtain,” Slattery said.
https://www.independent.ie/business/personal-finance/property-mortgages/the-financial-pitfalls-of-owning-a-holiday-home-in-an-era-of-rising-prices-and-taxes-42068287.html The financial pitfalls of owning a vacation home in an age of rising prices and taxes