Speculation on axing help-to-buy scheme may panic first-time buyers

Market commentators warn that scrapping scheme won’t stall property price growth

Speculation is mounting that the new Minister for Housing is set to scrap the Help to Buy scheme, which offers an incentive to help first time buyers get on the property ladder. However, market commentators have warned that doing so won’t stall property price growth and could send first-time buyers into a panic as they rush to buy before the incentive is culled.

Newly appointed Eoghan Murphy said on Sunday that he is concerned that the scheme, launched in January by his predecessor Simon Coveney, "hasn't achieved the delivery on the supply side that we need".

The scheme, which was due to run until 2019, allows first-time buyers to apply for a rebate on taxes paid of as much as 5 per cent of the purchase price, up to a limit of € 20,000. Latest figures show that more than 7,000 first-time buyers have applied for the scheme so far, about 40 per cent of whom are looking to buy in Dublin. The majority are looking for a rebate of between €10-15,000.

Stimulating demand


Many market commentators argued against the introduction of Help to Buy on the grounds that it stimulated demand - rather than supply - and thus exacerbated the demand: supply imbalance.

As such, Philip O’Sullivan, economist with Investec, “would welcome any moves from government that help to increase housing supply”.

However Keith Lowe, managing director of DN,G says axing Help to Buy would be "a really bad move" as it has worked in boosting supply.

“What it has done, is it has given the confidence back to funds and banks to support developers , and from a buyer perpsecitve it has helped people get on the ladder where they couldn’t before,” he says, adding, “It will reduce the amount of buyers that are out there, and it’ll slow construction numbers if they take it away”.

Figures compiled by DNG suggest that in the first quarter of the year some 443 new properties were sold in Dublin - up by 72 per cent on the same period in 2016.

Lowe fears that the uncertainty now surrounding help to buy will send buyers into a panic.

“If you were a first time buyer and didn’t have a deposit, and now you’re told the Government will take it away from you you’re going to go mad and buy a house . It will lead to panic for first-time buyers,” he says.

Marian Finnegan, chief economist with Sherry Fitzgerald, agrees that the speculation as to will they or won't they cut the scheme is "particularly unhelpful".

“What we need more than anything is certainty,” she says, but adds that even if first-time buyers were to rush out to buy a property before any change is made to the scheme, they would struggle to find one, given the shortgage in supply.

She says the scheme needs to be in place long enough to be effective.

“Even reviewing it at this stage is premature - the market hasn’t had time to respond to it,” she says.

House price growth

In addition to the supply issue, there have been concerns that the scheme has pushed up house prices. The pace of house price growth has risen from 6.8 per cent at the time of its introduction in last October’s Budget for example, to 10.5 per cent in April of this year.

“These optics do not argue for the scheme to be retained,” says O’Sullivan, although he adds that it’s “difficult to isolate the direct impact of the scheme on property prices”.

Indeed Help to Buy went live in January 2017 - the same month that the Central Bank easied its mortgage lending rules, thus making it easier for first-time buyers, particularly those in Dublin, to purchase a property.

Finnegan argues that Help to Buy is not contributing to house price growth, as the “vast majority of properties are in the second hand market place”.

“You can’t blame one small segment of one small market,” she says.

So, while scrapping Help to Buy will remove one of the sources of the recent resurgence in house prices, it may not dampen house price inflation.

“The fundamental mismatch between supply and demand will continue to support prices for some time yet,” O’Sullivan says.

The Department of Finance is currently looking at the scheme, with a review due to be published in August. An announcement on the continuation of the scheme could be made in the 2018 budget on Tuesday, October 10th.

Fiona Reddan

Fiona Reddan

Fiona Reddan is a writer specialising in personal finance and is the Home & Design Editor of The Irish Times