First-time buyers are expected to get a filip this October, with plans afoot for a new incentive-type scheme which should help them get a first step on the property ladder.
The so-called "Help to Buy" scheme for first time-buyers (FTBs) will be outlined by Minister for Finance Michael Noonan on budget day, and should offer some form of monetary incentive for beleaguered homebuyers stymied by restrictive mortgage lending rules and exorbitant rents.
The Help to Buy initiative is part of the Government’s overall housing strategy, which aims to increase the number of homes built a year to 25,000 by 2021, as well as providing 47,000 social housing units in the same period.
Previous efforts to incentivise first-time buyers through Dirt-free savings have failed to take off, so will the Government strike the right note with its new plan?
All will be revealed when Budget 2017 is announced, but here are some preliminary pointers:
1) It will be revealed on budget day: Minister for Housing Simon Coveney has indicated that the new scheme will be revealed on budget day, October 11th, 2016.
2) It could be worth up to €10,000 a couple: In its manifesto, Fianna Fáil previously proposed a type of special saving incentive account (SSIA) scheme, which would see the Government give people €50 for every €200 they saved towards a mortgage deposit. The incentive would be capped at €5,000 for a single buyer and €10,000 for couples. However, while the Government's scheme is thought to be of a similar order, it is understood to work around a tax rebate scheme. This means that rather than incentivise people to save for a deposit for a property, the Government will give you money back once you purchase, something akin to the home renovation incentive scheme, which gives you 13.5 per cent VAT refund on new kitchens/extensions etc. The new scheme could, however, be a combination of the two. The UK's Help to Buy scheme, for example, gives those saving for a home a 25 per cent reward on savings of up to £3,000, so a maximum reward of £750. However, while the scheme was originally understood to be introduced to help those saving for a deposit, it now appears that the reward can only be used once the property is purchased.
3) It will be backdated to July 19th. Announcing the scheme on July 19th, Mr Coveney said that any incentive will be backdated to this date, which should reassure FTBs who are hoping to buy before the budget. However, it is not yet clear what this date actually means – ie, does it apply to property buyers who go sale agreed after this date? Or does it apply to mortgage drawdowns? This could potentially exclude FTBs who bought a property in June, and drew it down in August.
4) The scheme may be limited to particular homes: Conal Mac Coille, economist with Davy Stockbrokers, notes that the scheme may be limited to homes under a certain value and/or new build properties only. Given that the scheme is to be introduced to "incentivise the construction of more starter homes", the latter could make sense, while a cap on values is pretty much a certainty. As Mr Coveney said when launching his housing plan in July, "We're not in the business of supporting the purchase of mansions."
5) It could push up house prices: If, as is expected, the rebate is as much as €10,000 for a couple, when this is set against an average mortgage loan of €197,000 for the second quarter of this year the rebate "could push up house prices significantly", Mr Mac Coille says. The aforementioned Help to Buy scheme in the UK, for example, is said to have added an average £8,250 to the cost of a home.
6) It's for first-time buyers only: Under Revenue rules, a FTB is someone who has never – either jointly or individually – purchased or built their own house in Ireland or abroad; intends to live in the property; and won't earn rent on the property apart from letting a room under the rent-a-room scheme. If the Government applies this understanding of a FTB to its new scheme, it means that if your partner previously purchased a property and you now hope to buy one together, you won't be entitled to avail of the scheme. Moreover, if you're a returning emigrant and previously purchased a property abroad, you won't be considered as a FTB either.
7) It's part of a review of mortgage-lending limits: The Department of Finance is working on the scheme in conjunction with the Central Bank, as part of its review of its mortgage lending limits. Whether or not this means changes to the mortgage lending review remains to be seen, however.
8) Mortgage insurance may be part of the scheme: In its housing plan "Rebuilding Ireland", the Government noted that the goal of Help to Buy is to provide "affordable mortgage finance or mortgage insurance" for FTBs. Mortgage insurance is a way of allowing homeowners borrow more than the 80 per cent or so of purchase price allowed under the Central Bank's new rules, as some of the mortgage risk is transferred from lenders to insurers. However last year a senior economist with the Central Bank expressed concern about the potential cost of mortgage insurance, warning that it could "act counter" to the regulator's lending rules.
