Help-to-buy scheme set for review after extension

Minister for Finance Paschal Donohoe said that the Government would review its help-to-buy scheme for first-time buyers next year, after confirming on Tuesday that the programme would be extended beyond the end of 2021 into next year.

Speaking as he unveiled Budget 2022 in the Dáil, Mr Donohoe said the scheme would continue into 2022 on current enhanced rates that were introduced last year.

However, he said that he would follow up on a recommendation from the Tax Strategy Group, a think tank of senior government officials and political advisers, to carry out a full review next year of the programme, which was introduced in 2016.

Assessment

The assessment comes as the Government is planning to introduce a shared-equity scheme next year, which involves the State paying for up to 30 per cent of the cost of new homes in return for a stake in the property, and as the Central Bank is carrying out a broad review of mortgage lending restrictions, introduced in 2015.

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Help-to-buy allows first-time homeowners buying or building new homes to claim relief of income tax and Dirt paid over the previous four years up to a maximum of €30,000 or 10 per cent of the purchase price of the property.

Those figures were increased on a temporary basis in July last year from limits of €20,000 or 5 per cent previously. The extended scheme will be based on the enhanced rates introduced last year.

The Tax Strategy Group reported last month that, up to the end of July this year, the scheme had cost the exchequer €470 million in refunds to 26,744 people.

The group said that ending the help-to-buy scheme this year could lead to market disruption as developers scale back supply of starter homes.

Close to two-thirds of all applicants have claimed a tax refund of more than €15,000 since the scheme began in 2016.

One in five has sought a refund of more than €20,000 even though the higher threshold has been in place only for the past year.

Cost

“The cost of help-to-buy continues to grow and, based on its current trajectory, it could reach over €170 million in 2021,” the Tax Strategy Group report said.

“Even taking into account the significant enhancements introduced (on a temporary basis) in July 2020, this is over four times greater than the original estimated cost of the €40 million per annum for the scheme when it was first introduced.”

Sherry FitzGerald managing director Marian Finnegan said the scheme had been “crucial in facilitating greater numbers of first-time buyers to make their first step onto the property ladder, while also acting as an important stimulant for the construction industry”.

However, she said that the limited timeframe of the extension “is unfortunate, as a longer term would have provided greater reassurance to buyers and indeed suppliers”.

EY Ireland’s director of economic advisory services, Annette Hughes, said: “Perhaps this was a missed opportunity to extend the scheme for a further two years until the end of 2023 to support first-time buyers, including those returning to work post the pandemic or starting to save a deposit for their first home, which is likely to take at least two years.”

Property Industry Ireland, the Ibec group for businesses working in the property sector, said the announced review “must take place early and quickly to avoid uncertainty and allow the continued delivery of housing”.