Good news for first-time buyers, or is it?

Mortgage

The Government has announced a new scheme offering a “realistic and affordable opportunity” of home ownership to hundreds of low and middle-income earners. The scheme is called the Rebuilding Ireland Loan.

What is the scheme?

The scheme is offering mortgage rates that are much lower than the average rates at banks. The borrower can choose a fixed rate of 2%-2.25% interest for 25 – 30 years; average bank rates for a ‘2-year fixed rate’ come in at 3% (moneyguideireland.com). The scheme allows more certainty of repayments over the lifetime of the loan, in other words, it will take the risk out of mortgage loans because the rate will be fixed for the duration of the loan.

In addition to the loan scheme, the new proposals include an Affordable Purchase Scheme, allowing the State to use State land to build thousands of affordable homes.

It will be available nationwide from local authorities from Thursday, 1st February 2018.

Who is it for? Who Qualifies

Aimed at prospective homeowners who don’t qualify for social housing; specifically, first-time buyers that might be struggling to obtain finance.  The loan can be used to buy new and second-hand properties or to build a house. Applicants must be over 18 years of age and have a gross income of not more than €50,000 for a single applicant or €75,000 as joint applicants.

How much do you get?

Under the scheme, a person or couple can borrow up to 90% of the market value of a home. On condition that your income does not exceed €50,000 for a single person or €75,000 for a couple.

The mortgages available can be used to buy a house valued at up to:

  • €320,000 in the greater Dublin area, as well as Cork and Galway
  • €250,000 in the rest of the country

For example, a person earning €40,000 a year and living in Mayo could afford to buy a house worth €224,920, provided they had the deposit of €22,400.

They could then borrow €198,000 from their local authority and their monthly repayments would be in the region of €858 a month, or 33 percent of their Net Disposable Income.

A couple earning €75,000 and living in Dublin could afford to buy a house worth €320,000, provided they had €32,000 as a deposit between them.

They could then borrow €288,000 from their local authority and the monthly repayments would be €1,221 or 24 percent of their Net Disposable Income (The Journal.ie)

What are the benefits?

The scheme is to help home-buyers, who might otherwise be locked out of the housing market, get their first home.

But on the downside, are there many available properties available in Dublin within the €320,000 price range? One housing expert was quick to critique the scheme stating that this will lead to elevated house prices by at least 10%, (Irishtimes.com). It would be worth keeping an eye on house prices over the next few months to see if this prediction materialises, if so, the ‘affordable’ may become the ‘unaffordable’. Last year’s Government Help-To-Buy scheme [a grant of €20,000], was offered to new builds only therefore not increasing overall house prices. Could this approach be taken again?

However, last year’s scheme had other expedients according to Pearse Doherty – figures released after the scheme showed that more than two-thirds of people whom successfully claimed could have afforded the 90% mortgage without the scheme’s help!

Many will argue that this is a meaningless token from the government, not addressing the problem of supply and instead causing a surge in demand. “While this change is welcome and long overdue, people can’t buy affordable homes that don’t exist” (The Labour Party’s Jan O’Sullivan). But regardless of these criticisms is any progress towards increasing home ownership, not a positive action?