Government announce affordable home initiative
The Government has announced a number of initiatives to assist with the housing crisis. The Home Loan scheme is designed to provide Low cost mortgages for first time buyers. Details of the initiatives are outlined below.
Rebuilding Ireland Home Loan
The Rebuilding Ireland Home Loan is a new Government-backed mortgage for first-time buyers. It will be available nationwide from local authorities from Thursday, 1 February 2018.
The loan can be used both for new and second-hand properties, or to build your own home. In line with Central Bank rules, a person or couple can borrow up to 90% of the market value of the property. Under the loan, they can choose a fixed rate of 2%-2.25% interest for 25 - 30 years, so they will have absolute certainty of their repayments over the lifetime of the loan.
What this means essentially is that a person or couple can purchase a home, while ensuring that they can still keep their monthly repayments to one third of their net disposable income – with no risk of their mortgage rate rising and so no threat to their ability to afford repayments, giving them certainty and security.
To avail of the Rebuilding Ireland Home Loan, your annual gross income cannot exceed €50,000 as a single applicant, or €75,000 for joint applicants. There's also a cap on the value of the home you can buy. In the Greater Dublin Area, Cork and Galway, the maximum market value is €320,000. In the rest of the country, it is €250,000.
So, 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% of their Net Disposable Income.
As a second example, 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 their monthly repayments would be €1,221, or 24% of their Net Disposable Income.
Other eligibility criteria apply, for instance, you must meet prudential lending analysis (i.e. must demonstrate that you are able to afford the loan repayments) and that you have had two insufficient offers or refusals for a mortgage from two lending institutions.
A Home Loan Calculator is available on www.rebuildingirelandhomeloan.ie (link is external) so you can get an idea of how much you could borrow and what the repayment rates might be.
Affordable Purchase Scheme
A new Affordable Purchase Scheme is a national scheme that will see affordable homes built initially on State land, in co-operation with local authorities.
The same income limits as under the Rebuilding Ireland Home Loan will apply for applicants to be eligible to purchase homes under the scheme – your annual gross income cannot exceed €50,000 as a single applicant, or €75,000 for joint applicants. Further qualifying criteria will be determined in consultation with the Housing Agency, the Oireachtas, local authorities and other stakeholders, and will be reflected in the regulations to launch the scheme next month.
The purpose of this scheme is to enable people to get a home of their own, supported by and in partnership with the State. With local authorities providing the land at reduced or no cost to facilitate affordable homes, the price of the affordable house will be discounted and the State will retain an equity share in the house, relative to the discount from the full price. So for example, a house that costs €250,000 may be made available to purchase at €200,000. The equity share can be paid off, interest free, by the purchaser at a later date. Or if the owner wants to sell early, the State can take that portion back at the time of sale.
Comment
The home loan scheme will certainly raise questions and although the expected loan level envisaged being covered by the scheme is relatively small, there are question marks over the scheme conflicting with Central Bank policy is the area of income multiples. In the example given for a €40,000 single earner we see the new scheme providing almost 5 times income which is well in excess of CBI guideline of 3.5 times income. One of the reasons the Central Bank guidelines were introduced was as a measure to slow down house price growth and in areas where one can buy a house for less than €200,000 we can see this measure as inflationary.
Another concern is where is the Government getting all this long term funding so that they can lend for up to 25 years at 2.5%. Is the Government subsidising house ownership long after the need is there?
It will be interesting to see the debate unfold.
We would certainly welcome more long term fixed rate availability generally, but not at the expense of raising house prices.