At a first-time buyers’ event hosted by Bank of Ireland in the Conrad Dublin hotel in September, a frustrated home-hunter stood up and asked when “normal” people would be able to buy houses again. By “normal”, he meant average-salaried workers who don’t have access to the Bank of Mum and Dad.
That man must have been thrilled last week by the launch of the Rebuilding Ireland home-loan scheme, which offers a government-backed mortgage to first-time buyers. The €200m programme is open to purchasers of new and second-hand homes, or those building their first home. It will be available through local authorities from Thursday.
To be eligible, a single applicant’s income must not exceed €50,000, while those of joint applicants must not exceed €75,000. A cap applies to the price of the home you can buy: those in the greater Dublin area, Cork or Galway won’t be able to buy a house worth more than €320,000; for the rest of Ireland, they can’t exceed €250,000.
Some have argued that it is simply a rebranding of the local authority lending scheme. Where it differs is in the amount of money people can borrow. The local authorities will lend up to €200,000 or 97% of the value of a house. With the new scheme, borrowers have to pay a 10% deposit. The new scheme also disregards the Central Bank of Ireland’s 3.5 times loan-to-income limit.
In his launch speech, housing minister Eoghan Murphy gave the example of a person earning €40,000 a year in Co Mayo looking to buy a house worth €224,920. After paying the deposit, that individual would be eligible for a mortgage of €202,520 — 4.95 times their income.
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Local authorities won’t be going completely flaithiulach on us, though. A person on the average wage of about €37,000, won’t be able to borrow the maximum allowable under the scheme. But they will be able to borrow from 5 to 5.5 times their income.
The loans will come with a fixed rate of 2%-2.25% for the full 25- or 30-year term. Therefore, the housing department says there will be “no threat to their ability to afford repayments”. Unless, of course, borrowers take a wage cut or lose their job, taxes increase or life circumstances change.
That’s the fly in the ointment for this scheme. Life circumstances do change, so those on the fixed-rate mortgage will incur penalties if they want to sell before their 25- or 30-year term is up. One way to avoid the early repayment charge is to take up the variable interest rate of 2.3% that is available.
The home-loan scheme will not solve the housing crisis. The initial €200m fund will provide money for about 900 mortgages. Likewise, it doesn’t tackle our most significant problem: the lack of supply. The government is hoping its Affordable Purchase scheme, which will see it build 3,000 houses, will do that.
But for first-time buyers, such as that man who stood up at the Bank of Ireland event, the home-loan scheme will be a glimmer of hope.