A lending hand

You’ve got the stack of magazines by your bed. You’re a frequent visitor to houzz.com and have started spending your weekends in fitted kitchen shops and hardware stores. But while you might know what you want your new bathroom or kitchen extension to look like, you might be less certain about how you’re going to fund it.

So, if you’re looking to undertake some home renovations in 2014, what are your financing options if you don’t have enough cash in the bank?

Energy-saving grant
If your renovations will improve the energy efficiency of your home, you might be entitled to a Better Energy Homes grant. The scheme is administered by the Sustainable Energy Authority of Ireland (SEAI), and the minimum spend to qualify for a grant is €400.

Grants are offered on a cash basis, which means you will get the same amount whether you get the work done for a lot or a little, so it pays to shop around for the best quality at the best price.

Some caveats apply. If you’re in the market for a new boiler, for example, you won’t be eligible for a grant unless you upgrade your heating controls – such as introducing zones, etc into your house. Similarly, you won’t be entitled to a grant for drylining if you insulate only one room in your house – you must completely insulate your home in order to qualify for the grant.

Period home grants
If your home is of "significant architectural merit", you might be entitled to additional grants. The Irish Georgian Society, for example, is to set aside €50,000 a year for between three and five years to fund conservation projects.

While the society will spend a large proportion of the budget on just one project, smaller grants will also be made available for projects such as the repair of windows, fanlights, doorcases, ironwork and decorative plasterwork, and for essential conservation advice.

Another option is to look for funds under the Government’s Built Heritage Jobs Leverage Scheme. Under this year’s scheme, which closed last month, applicants could apply for a grant of between €2,500 and €15,000 with a total fund available of €5 million. The money is to be disbursed on a matching basis, and if you missed this year’s funding round, some preparation work now might stand you in good stead for next year – so long as the Government decides to fund it again.

Finally, the Government’s Living Cities initiative, which was launched in 2012 and extended in the last budget, enables residents of pre-1915 buildings to claim tax relief, at a rate of 10 per cent a year, over a 10-year period, for the cost of refurbishment works. The tax relief applies to eligible properties in Waterford, Limerick, Cork, Galway, Kilkenny and Dublin.

Consider a bank loan
Your options may have diminished in terms of the number of providers in the marketplace, but it is still possible to get a loan from your bank. It won't be cheap, with banks charging an APR of about 10-12 per cent, and may not be easily come by, with banks still loathe to offer unsecured debt.

One option might be Bank of Ireland, which launched a €75 million fund specifically to help homeowners looking to avail of the home-renovation tax incentive scheme (see panel on previous page) last October.

If you’re interested in such a loan, you can apply at an interest rate of 9.9 per cent APR, over a term of up to 10 years, or, if you already have a mortgage with the bank, you can look to top-up your mortgage over the longer term. If your loan-to-value is less than 75 per cent you will be able to avail of 4.4 per cent APR, rising to 4.6 per cent for loan-to-values above this.

Ulster Bank is also in the market for personal loans for home renovations at an APR starting from 8.79 per cent. And, if you have been approved for a grant under the Better Energy Homes Scheme, you can avail of a discount of 1.4 per cent on its standard personal loan fixed rates.

So, for example, if you borrow €20,000 over three years at a rate of 9 per cent, you will have to repay €632 a month at a total cost of credit of €2,778. Stretch it out to five years and your repayments will fall to €411 a month, but your total interest will rise to €4,705. If you opt for a top-up of €20,000 on your mortgage, based on a rate of 4.75 per cent you’ll pay back an extra €154 a month but will cost you €27,815 to repay in full, so opting for a mortgage top-up is the most expensive option. Permanent TSB may also consider releasing equity on your property, starting at €25,000 up to a maximum of 85 per cent of the current market value of the property, less the amount outstanding.

The credit union
If you're looking for a low-cost loan, your local credit union might be a good option.

For example, St Raphael’s Garda Credit Union in Naas, Co Kildare, is offering a rate of 4.25 per cent on a minimum of €20,000 over five years for its home improvement loan. Similarly, Ashbourne Credit Union, in Co Meath, is offering a rate of 6.99 per cent on its home improvement loan, for amounts of between €5,000 and €30,000.

Bear in mind that credit unions are now liable to much stricter lending criteria given the Central Bank’s increased oversight of the sector, and as such, you might find it that bit more difficult to secure a loan than you might have done in the past.

Your flexible friend
It might be tempting, but putting your new windows or stove on your credit card can cost you dearly in the long run.

Running up a €10,000 bill, for example, and making the minimum repayment of 2.5 per cent each month on a card that levies interest at 20 per cent, will take more than five-and-a-half years, just to pay off the loan. And those windows will cost you twice as much when you factor in interest charges of almost €10,000.

Credit from the provider
While many UK kitchen manufacturers – and even Ikea – offer credit terms on new kitchens and bathrooms, it's a less frequent occurrence in Ireland. However, you might find that you can secure a loan from a retail outlet on everything from curtains and cushions to microwaves and washing machines.

Harvey Norman, for example, offers an interest-free credit loan for up to 36 months and if you find the cash to repay the loan earlier than this term, you can do so at no extra cost. So, for example, if you buy a couch valued at €1,000, you will need to pay €100 upfront, and borrow the outstanding €900 with 36 monthly repayments of €25 each.

Another option is littlewoods.com, which also offers credit, with the condition that you pay a minimum 10 per cent of your outstanding balance each month. However, be warned that it charges a particularly high interest rate of 39.9 per cent. This means a purchase of €200 on credit will cost you €250 if repaid at the minimum rate.

Attic insulation (€200)

Cavity wall insulation (€250)

Internal dry-lining (€900-€1,800)

External wall insulation (€1,800-€3,600)

Heating controls with boiler upgrade (€560)

Heating controls only (€400)

Solar heating (€800)

BER certificate (€50)

Source: Better Energy Homes

On its own it may not be enough to convince you to undertake work in your home, but the Government’s home renovation scheme can take the sting out of the cost of doing so.

Introduced last October, the scheme allows you to claim a tax credit on VAT incurred on home renovations, which in effect means a 13.5 per cent discount on everything from getting your kitchen painted to your garden landscaped.

The scheme originally required you to spend €5,675 including VAT to qualify, but the amount has since been reduced to €5,000, inclusive of VAT (or €4,405 exclusive of VAT), which means that more people will qualify. The maximum relief you can claim back on the scheme is €4,050 based on a spend of €30,000.

To qualify, the work must commence on or after October 25th, 2013, and must be carried out during 2013, 2014 or 2015.

Works that qualify for the relief include painting and decorating, rewiring, extensions, garages, attic conversions, supply and fitting of kitchens, bathrooms, built-in wardrobes, window fitting, repair or replacement of septic tanks, plastering, driveways.

But before you embark on a renovation project in the hope of benefiting from the scheme, read the small print:

• Works must be carried out by a tax- registered builder/contractor to qualify for the tax credit. To check if a contractor qualifies, they must show you a current "relevant contracts tax" rate notification, and a current tax clearance certificate, which will show a "valid until" date.
• Homeowners must be up to date on property tax and the household charge.
• The tax credit is granted over two years – for example, if you are entitled to a credit of €4,050 in 2014, it will be divvied out over the following two years – so you will pay €1,025 less tax in 2015 and the same in 2016.
• You must pay tax to benefit from the scheme – if you are retired and have a tax-free income of €36,000 as a couple, the scheme will be of little use to you. And the credit applies only to PAYE – not to USC or PRSI. However, according to the Revenue, if you can't use the tax credit then it will be rolled forward "until fully utilised against future income tax".
• Not all works are eligible – for example, if you buy a kitchen and get it fitted separately the cost of fitting (which incurs a VAT rate of 13.5 per cent) will be eligible for the scheme but the kitchen itself won't be. On the other hand, if you get a contractor to supply and install the kitchen units, it will qualify provided that, in acceptance with the "two-thirds rule", the cost of the kitchen units does not exceed two-thirds of the overall cost.
• There is no obligation under the scheme to get all the work carried out by one contractor. If you have several smaller jobs that you want to get done, these will qualify, provided that they exceed €5,000 over the course of a year.
• You can still get the tax credit, even if you avail of a grant from the SEAI. Any grant you receive will be disregarded from the qualifying amount by a multiple of three. For example, if you spend €10,000 on external wall insulation, you will be entitled to a grant of €2,700. This means you will be entitled to claim VAT relief on only €1,900.
• If you receive an insurance payment which you put towards the cost of an upgrade, the full amount of this payment will be disallowed.
• If you have already had work carried out and want to claim for it, you won't be able to do so until January 2015. The contractor who completed the work will be able to input the project on the Revenue's new electronic system once it's live, in April of this year, and will have just 28 days to do so. But you will have to wait until January next year to file your claim, again through the new electronic system. Revenue will publish further information on how to make your claim closer to the "go live" date of January 2015.
• If you're self-employed, you'll have to wait a little longer to claim, as you can only do so in your 2014 and 2015 income tax return, which are due on October 31st, 2015, and October 31st, 2016, respectively. Similar to a PAYE worker, the credit is split over the two years.