What supports are available for first-time buyers?
It was undoubtedly a week of mixed emotions for prospective first-time buyers.
On the one hand, a glimmer of hope came through the clouds of affordability with details announced of the government’s shared equity scheme.
Elsewhere, aspirant buyers were left disappointed and angry when news emerged that the bulk of houses in at least two schemes had been bought up by a global investment fund.
The development caused considerable political controversy, even though it’s been happening for many years with city apartment blocks in particular.
There is no doubt that it’s a difficult environment for anyone looking to purchase a home at the moment, but particularly so for first-time buyers.
The hope last year that Covid might have seen some of the heat come out of the property market has since been dashed with a combination of tighter supply, higher savings by some, and a lengthening queue of new entrants to the market serving to drive prices higher.
However, there are a number of schemes and incentives available that some people entering the market for the first time will be eligible for.
Help to Buy
First introduced in 2017, this scheme has – not surprisingly – proved incredibly popular.
According to figures from the Department of Housing, more than 22,000 first-time buyers availed of the scheme in the four years since its inception at an estimated cost of around €390 million.
It was originally due to lapse in December of last year but was extended to the end of 2021 with an enhancement introduced in the July stimulus last summer, despite the Oireachtas Parliamentary Budget Office saying the scheme “likely benefited some purchasers who did not need the incentive.”
In its current guise, the scheme provides tax refunds of up to €30,000, or 10% of the purchase price of a property (whichever is less) for homes priced at €500,000 or less.
The incentive is available towards the cost of a newly built home, including a self-build property.
In order to avail of the scheme, you must have paid the equivalent amount in either income tax or DIRT, or both, in the four years leading up the claim.
USC and PRSI are not considered, but most people who have been living and working here in the past few years will likely have paid enough income tax to qualify.
The money can be put towards the deposit, but if it accounts for the full deposit, the bank will likely seek proof of savings and ability to save.
If two buyers are purchasing jointly, they will only qualify if neither has previously bought or built a property.
Part of the Affordable Housing Bill 2021 approved by Cabinet earlier in the week, this scheme – presuming it gets the green light from the Oireachtas and the Central Bank – provides for the state taking an equity share of up to 20% (or 30% in some limited circumstances) of the value of a newly built home with the buyer taking out a mortgage to cover the rest of the purchase.
It’s primarily aimed at buyers who are unable to get a mortgage to cover the full price of a property.
First time buyers can also avail of the aforementioned Help-to-Buy scheme in tandem with this.
Qualifying properties are subject to a price cap of €500,000 on apartments, and €450,000 on houses, in Dublin City and Dún Laoghaire.
The next-highest cap applies to properties in Cork, Fingal, Galway City, South Dublin and Wicklow, where it’s set at €400,000.
The lowest cap is €225,000 for counties Cavan, Donegal, Leitrim, Longford, Mayo, Monaghan, Sligo and Tipperary.
To use the example of the highest value threshold for the scheme – €500,000 for an apartment in Dublin City – if the aspirant purchasers put €20,000 in savings towards the cost and they get €30,000 through the Help to Buy scheme and if the State was to take a 20% stake (€100,000), they would require a mortgage of €350,000.
Based on the Central Bank rules restricting lending to 3.5 times income, that would necessitate earnings of around €100,000 – achievable for some professional couples, but still well beyond the reach of all but a minority of single buyers.
As part of the scheme there would be a zero-interest charge on the state-backed equity for the first five years.
A rate of 1.75% would apply between years six and 15, before rising to 2.14% from years 16 to 29 and 2.85% for 30 years and over.
Although it would apply to a small part of the overall mortgage, the aggregate rate over the lifetime of the loan does compare favourably to those being offered by lenders in the market.
The question remains, though, as to whether the scheme is stretching the realms of affordability by essentially getting around the Central Bank lending rules.
Rebuilding Ireland home loan
This is a government-backed mortgage for first-time buyers who have been refused a mortgage – or couldn’t get sufficient finance – from at least two lenders.
Loans are offered at reduced interest rates – fixed for up to 30 years – which can be used to buy new and second-hand properties, or to build a home.
Successful applicants can borrow up to 90% of the market value of the property, meaning you have to come up with 10%, but the Help to Buy scheme can be used to contribute towards covering that cost.
However, the rates on offer on these loans have risen from a very attractive 2% to 2.745% for borrowing up to 25 years and 2.995% for loans of up to 30 years duration, which is quite steep compared to what some lenders are currently offering on the open market.
The advantage, though, is that you’ll have the security of knowing what your repayments will be for the lifetime of the loan, something that’s not available to borrowers in the open market.
There are restrictions on the property size and the value with the size cap set at 175 square metres.
The maximum market value differs depending on where the home is located, but ranges from €320,000 in Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow to €250,000 in the rest of the country.
In order to qualify, the borrower must have gross annual income of €50,000 or less as a single applicant or €75,000 or less for joint applicants, and they must prove that the mortgage repayments can be afforded and that they do not exceed one third of household income.
That’s quite a few hoops to jump through, and perhaps it’s little wonder that so many applicants have been turned down for the scheme.
According to recent figures, only around half of applicants who applied this year have been recommended for approval by their local authority.
Mortgage Allowance Scheme
This is an option that’s available to social housing tenants who wish to buy or build their own home.
It offers an allowance of €11,450 which is payable over 5 years. The payments go towards reducing mortgage repayments over those years.
The allowance is paid directly to the lending agency, be it a commercial lender or the local authority.
The applicant must live in the property for the entire 5-year duration of the allowance.
Will more houses be built?
Two lengthy shutdowns of most parts of the construction sector in the space of a year because of Covid-19 restrictions have not assisted with the general supply problem.
According to various estimates, between 30,000 and 35,000 units need to be constructed every year for the foreseeable future here in order to keep up with demand.
Last year, around 20,500 housing units were completed – a better outcome than expected in the context of the initial construction sector closure.
Figures for the first three months of this year, published earlier this week, showed that completions were down 20% to around 4,000 units from close to 5,000 units in the same quarter last year.
Given that all sites were closed except for social housing and essential projects in that time, the outcome was not as bad as most had expected.
It’s now thought that completions for the full year might match last year’s, but the concern is around commencements, or the process of starting to build houses.
The numbers here have taken a hit due to the pandemic which suggests that Covid-19 may have a lingering effect on the construction sector for months or even years.
Who are house buyers competing against in the market?
Apart from the investment funds that have attracted so much attention this week, there’s one other big competitor to first-time buyers looking to acquire a home.
And that’s the state itself.
According to Dermot O’Leary, chief economist with Goodbody, the government accounted for around 60% of home purchases by what are categorised as ‘non-households’ in the past two years.
As far as the investment funds are concerned, the government is looking at curtailing their ability to buy up entire estates – most likely through taxation – but there’s broad agreement that they have a role to play in the provision of housing to both the rental and owner-occupier markets.
In a statement yesterday, the body that represents institutional property investors said its members would support the notion of a percentage of homes in developments being set aside for individual purchasers, including first-time buyers.
“We do not believe it is acceptable to offer houses for sale to the general public, inviting people to start to plan their finances to buy a house and then to withdraw them at short notice,” Irish Institutional Property (IIP) said in its statement.
It’s cold comfort to those prospective buyers in Maynooth and Dublin 15 in the past week.
And there may be more disappointment ahead in a market that has more and more hopefuls joining the queue for a dwindling supply of properties where prices are rising at well above the rate of inflation.
And that could be the situation for quite a while yet.