Are you a teacher on a salary of €45,000? Or a mechanic on €35,000? Or a hairdresser and a lab assistant on joint income of €70,000? While Help to Buy might look appealing, with its offer of a 5 per cent taxback on your deposit, it’s not going to actually help you buy your first home.
Introduced in December 2016, Help to Buy promised to help to get putative home buyers out of the exorbitant rental market and on to the property ladder but it has really only delivered to a certain cohort: those on incomes (combined or otherwise) of about €90,000 and above.
While it has fulfilled its primary goal – to stimulate the construction of new homes – these have tended to target a certain price range.
Figures from Davy show that 62 per cent of claims in 2019 were for homes valued above €300,000, “with an even higher proportion in Dublin”, while the median price of newly built homes sold in Dublin in June was €345,000.
In the capital, at least, where the housing crisis for low to middle-income workers is arguably the most challenging, most of these houses are pitched to sell at prices of €350,000 and above. And to qualify for a home in this price category, you will need a combined income of €90,000 a year, based on a deposit of 10 per cent.
While Help to Buy might help you close the gap on the €35,000 deposit you’ll need, if you’re one of our aforementioned would-be buyers, the Central Bank’s mortgage rules (which allow you borrow 3.5 times income) will preclude you from actually getting a mortgage to buy such a property.
And forget about getting an exemption that would allow you borrow more. Mortgage brokers typically say you’ll need an income of at least €60,000 as an individual or €80,000 as a couple to stand a chance of succeeding.
The Help to Buy scheme is due to expire at the end of this year. Reports over the weekend, suggested that rather than cull Help to Buy, the Government might opt to narrow its scope in the upcoming budget in October.
Most in need
Slashing the eligibility to houses worth €250,000 or below, as has been suggested, would seem to make sense. After all, if those on higher incomes can justifiably be expected to afford to buy a home themselves, then surely targeting those most in need would be the best approach.
Moreover, the scheme is currently costing the Government about €85 million a year – reducing its applicability to a tighter range of houses would reduce this expenditure to about €10 million.
And yet. It’s hard to understand what such a move would really achieve, other than saving the Government money.
Outside of Dublin – with median house prices in the year to June 2019 at about €200,000 in Limerick, between €225,000 and €290,000 in Cork, and €255,000 in Galway – there is an argument for such a cap, as it would directly target those who might need the most help.
But in Dublin, imposing such a cap would make the scheme all but null and void. After all, who can find a new house for less than this in the capital?
To date, the Government has spent about €36 million helping those who are buying a house for between €400,000 and €500,000
Consider an individual or a couple on an income of €60,000, who’ll qualify for a mortgage of about €210,000 and thus a purchase price of about €233,000. What can they buy in Dublin for this?
A quick search on leading property portal Myhome.ie, which is owned by The Irish Times, throws up 1,616 properties for sale in Dublin for €300,000 or less. A would-be, first-time buyer can choose from a wide variety of choices, including a dual-level, two-bed apartment in Kilmainham for €275,000, a two-bed home in Crumlin for €255,000, and a three-bed home in Blanchardstown for €259,950.
Tax rebate
The only problem is first-time buyers won’t get a 5 per cent tax rebate on their deposit by buying a second-hand home. Help to Buy applies to new builds only and finding a new home in that price category is a much tougher challenge.
On Myhome.ie, you’ll find just eight properties in the capital and just one of them is a three-bed house (Heathfield in Lucan), the type of property typically preferred by a first-time buyer.
The lack of new homes at lower sale prices means that, thus far, the scheme has disproportionately favoured higher-income home buyers. To date, the Government has spent about €36 million helping those who are buying a house for between €400,000 and €500,000. But it has spent less than €12 million supporting those who are buying houses for €200,000 or less.
Someone buying a house worth €400,000 will be entitled to 5 per cent, or €20,000, of the purchase price, while someone buying a house worth €200,000 will get just €5,000 back.
You might hear plenty of vested interests of late arguing that Help to Buy has been an undoubted success in assisting people to buy a property but the evidence suggests this is only true for a certain cohort of buyers.
But what could the Government do instead? Builders might argue that it’s just not economically viable to build houses for less than €300,000, given the cost of land. But rather than subsidise them to build more expensive houses in the €350,000-plus category, what about putting the money into Government-funded affordable homes?
If the Government had opted to invest €200 million or so some three years ago in such a manner, people could have been moving into their new homes by now.
