The Government is considering a new joint-ownership mortgage scheme proposed by Bank of Ireland to help middle-income earners to buy a house, but has expressed concern that it may further fuel house prices. The Minister for the Environment and Local Government, Mr Dempsey and the Minister of State for Housing and Urban Renewal, Mr Bobby Molloy, said the proposal was being examined as part of an ongoing review of housing policy as it affects house prices. The Department has raised some concerns about the initiative. It noted that it could have the potential to bid-up house prices at a time when the Government measures to tackle house prices are beginning to take effect. It also stressed that there was a greater need to increase housing supply rather than the supply of mortgage finance.
"The proposal will be fully considered by the Ministers and the Government in the context of their ongoing and extensive analysis of the housing market." Bank of Ireland has proposed a £100 million (€126 million) joint-ownership scheme with the State. It would make £75 million available at a discounted rate of interest and fixed for 20 years if the Government agreed to put up £33 million. A bank spokesman said the scheme is primarily aimed at helping middle-income earners. "Bank of Ireland recognises there is a huge problem developing for middle-income earners who are being frozen out of the property market. We estimate that a couple would have to be earning £55,000 to be able to buy a starter home in Dublin, or even in Cork, Galway and Limerick. Against that background the bank put its proposal to the Department of the Environment" he said.
No lower earnings limit would apply but applications would be considered from a single person earning £28,000 and up to £36,000 for a couple. The scheme is somewhat similar to that currently used at the lower end of the market by the local authorities. Under the scheme, Bank of Ireland would offer a mortgage covering 60 per cent of the total purchase price. It then suggested that the State should finance a further 35 per cent, with the purchaser contributing the remaining 5 per cent. The purchasers would take out a 20-year fixed-rate mortgage. In addition, they would also pay a 3 per cent per annum rent in relation to the money put up by the State.
"The scheme would ensure very low monthly outgoings for borrowers. For someone buying a £100,000 house, their total repayments including mortgage and rental would be around £500 a month" according to the spokesman. The individual would always retain the right to buy out the State's equity holding. The bank stressed that the proposal could be deemed to be in the spirit of "social banking" in offering "creative" solutions to the housing crisis.
The mortgage would be sanctioned based on the borrower's ability to repay the loan but the bank was advocating some relaxation of the income criteria for qualifying borrowers. Single people would be allowed to borrow up to three times their salary, compared with the current 2.5 times rule. Married couples could borrow an amount of up to three times the first salary plus the second salary. If the Government doesn't want to run with the proposal, the bank suggests it may be something that could be explored with a housing association or a similar group in the future.
Commenting on the proposal yesterday, Ms Annette Hughes, property economist with consultants DKM, said it would not do anything to alleviate the problems in the property market. "It doesn't build any extra houses. It would just bring more people into the property market at a time when it is already showing signs of overheating."
