Help-to-buy relief costing Government four times initial estimates

Ending the help-to-buy scheme this year could lead to market disruption as developers scale back supply of starter homes, officials at the Department of Finance have warned the Government ahead of Budget 2022.

The scheme of financial support for first-time buyers also forms part of the range of housing-related commitments set out in the programme for Government, they advise.

Help-to-buy allows first-time homeowners buying or building new homes to claim relief of income tax and Dirt paid over the previous four years up to a maximum of €30,000 or 10 per cent of the purchase price of the property.

Those figures were increased on a temporary basis in July last year from limits of €20,000 or 5 per cent previously.

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A review of the scheme carried out by the Tax Strategy Group says that, up to the end of July this year, the scheme has cost the exchequer €470 million in refunds to 26,744 people.

The cost of the scheme has risen every year, as has the number of applicants apart from a slight blip in applications last year.

Close to two-thirds of all applicants have claimed a tax refund of more than €15,000 since the scheme began in 2016. One in five has sought a refund of more than €20,000 even though the higher threshold has been in place only for the past year.

Dublin accounts for most applications (26 per cent) followed by Meath, Cork and Kildare. Close to 60 per cent of all claimants were borrowing 85 per cent or more of the price of their home.

Figures from the department also show that about two-thirds of the properties bought under the scheme cost between €226,000 and €375,000. There is an upper price threshold of €500,000.

Budget cost

“The cost of help-to-buy continues to grow and, based on its current trajectory, it could reach over €170 million in 2021,” the report states. “Even taking into account the significant enhancements introduced (on a temporary basis) in July 2020, this is over four times greater than the original estimated cost of the €40 million per annum for the scheme when it was first introduced.”

The Tax Strategy Group paper outlines five options for the scheme:

– terminate it on schedule at the end of this year;

– retain it for another two years in its current “enhanced” form;

– extend it for two years but with the lower relief thresholds that applied before July last year;

– extend the scheme but phase it out over a number of years by tapering the reliefs available, and ;

– expand the scheme by including derelict buildings among the eligible criteria.

On the basis of this year’s projected figures, the group says that restoring the lower thresholds could free up €70 million for the exchequer, while ending the scheme altogether would deliver savings of €170 million.

It says that any decision to extend the scheme should be subject to a further review “of the efficiency and effectiveness of the scheme, particularly if it is envisaged that the measure should continue beyond 2022”.

The Tax Strategy Group, chaired by the Department of Finance, presents papers annually on options for tax policy changes for consideration ahead of the budget. It has no decision-making powers.