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Help is coming! (Or is it?)

This blog is about help the government is giving those looking to get on the mortgage ladder

Clients we speak to every day are confused about what help is out there from the government to help people get mortgages to purchase new homes. What we have found is that there is some awareness of the Help to Buy, HTB, scheme but not a full understanding of how it works.

Many customers remember legacy schemes where people could buy their property together with their local authority and subsequently buy the full amount later. They ask; are such schemes still around? There has been coverage in the media of things that may be coming down the track.

There is also then the broader question of whether government help in the way it is designed has only one effect - to fuel house prices.

Overall the picture is confusing. This blog will look to clear it up. If you want to speak to us directly on this or anything else mortgage-related, get us here.

Help is needed !

We have written before about the rules that the Central Bank has in place for mortgage lending. The first implication is that first time buyers need a deposit of 10% of the property price (everyone else needs 20% deposit or more). The second one is that (although there are some exceptions to this rule), your mortgage loan size cannot be bigger then 3.5 times your gross earnings.

But these rules bring all sorts of issues. If you are a single borrower living in Dublin who has diligently saved €40k and is earning €60k (so max mortgage with the 3.5x rule = €210k), your maximum budget for a property is €250k. And one look at property prices in Dublin will confirm that is a very difficult situation to be in. Help is needed !

There must be lots of schemes available to help buyers !

There has been so much written in the media about it that you might think there is plenty of assistance. But in reality, the Help To Buy, HTB, scheme has for a long time been the only show in town. This relief can be up to 10% the purchase price of the property but capped at €30,000.

The HTB scheme is for first time buyers only for new-builds only, costing less than €500,000. Self-builds are included also. The HTB scheme gives a refund of income tax paid over the past 4 years in Ireland. There are some associated rules. You must take out a mortgage of at least 70% of the purchase price. And you must live in the property for five years.

You can read more about how to apply (and finding out how much of a rebate you may be due) on the Revenue website.

But I thought there were lots of other schemes to help ?

Yes, there has been a lot of noise in the media. A new Affordable Housing Act 2021 was passed in July 2021 but some of the schemes arising from it are not ready yet.

There are two main joint ownership schemes which have hallmarks of a scheme that was available in the early 2000's but phased out in 2011. The basic idea is that the full property price is out of the reach of first time buyers. However, there may be a possibility to buy a property together with the government/local authority and then buy them out of their share at a later date.

What are the two schemes coming down the track ?

The first one is will be a Local Authority affordable purchase scheme. Each local authority will introduce its own scheme.

The scheme is targeted at first-time-buyers. But this may also include the divorced and those that have been made insolvent. This is called the "Fresh Start" principle.

A related element is the Local Authority Home Loan. Each local authority has their own scheme. In Dublin it applies to single applicants (earning less than €65,000) or joint applicants (earning less than €75,000). It essentially allows borrowing beyond the 3.5 time limit for certain borrowers and for properties up to €320,000, in Dublin. This loan is open for applicants now.

And the other scheme?

The other scheme is the "First Home" Shared Equity Scheme. It is not available yet but a launch in Q2 of 2022 is expected. Again it is targetted to first time buyers (but incorporating the fresh start principle) and to properties up to €450,000. The idea is that the borrower will maximise their 3.5 times borrowing capacity with one of the mortgage lenders.

The borrowing amount can then be topped up by up to 30% through this scheme, in exchange for giving up an equity stake.

And is there any more help coming from the banks ?

There is a proposal under consideration at the moment by the Central Bank of Ireland. It means that certain lower-income borrowers (e.g. less than €60,000) may be able to borrow beyond the 3.5 times limit from the mortgage lenders.

But is the ultimate result of these measures just a boosting of house prices ?

It is very clear that house prices are trending upwards. The main driver is an insufficient supply of homes. This is separate from the measures we are discussing.

The house view at AM Financial is that if everyone was suddenly allowed to move from borrowing 3.5 times their gross income to 4.5 times their gross income, then house prices would simply increase to reflect this.

However, these measures are directed only at first time buyers in the lower/medium income bracket. They will boost prices a bit but they also look to help out a little a cohort that is currently locked out from participation.

With all these measures, will first time buyers be able to buy the home of their dreams?

No. The real help that is needed is more houses to pick from. Building needs to be accelerated and maintained at higher levels. Only then, will our housing issues resolve. The measures described in this blog are just a plaster - and not a very effective one.

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