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Minister for Housing Darragh O’Brien has described the Government’s new First Home scheme as “the most significant intervention in housing in a generation” – but how does it work?
Q: How much of a stake does the State take?
A: The basic tenet of the plan is that the government will take a 20 per cent stake in the house if the buyer is also availing of the government’s separate Help to Buy scheme, or 30 per cent if Help to Buy is not used.
For example if a first-time buyer has an income of €70,000, the maximum they can borrow is three and a half times their income so that would be €245,000. If that buyer wants to purchase a property for €350,000, it is clearly well out of their reach. If they already have a deposit of €35,000 (the necessary 10 per cent for a first-time buyer) then the maximum they can stretch their budget between income lending limits and the deposit will be €280,000. In this case, the so-called “affordability gap” is €70,000. Under the new scheme the buyer could move into that home with the State taking a 20 per cent stake in it.
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Q: Who is eligible?
A: Not everyone will be eligible for the scheme. It is for buyers who have not previously bought or built a property in Ireland. Rather it is targeted at those who do already not possess and are not entitled to a property. There are some exceptions such as where someone previously bought a house with a partner and that relationship has ended. Applicants must also have a right to reside in Ireland.
[ New €400m first-time buyers scheme will not add to inflation, Minister says ]
Q: Are there limits to the price of a house?
A: There will price caps for the scheme to avoid distorting the market and this will vary by different local authority areas. Also, in order to avoid people applying who actually can afford the house in question, the buyer will be required to borrow the maximum mortgage available and then look for the shortfall.
Q: Who has signed up to this?
A: For now you can only get access if your bank is a “participating lender”. At the time of writing the participating lenders are Allied Irish Banks plc (including AIB, Haven Mortgages, and EBS), Bank of Ireland Group plc, and Permanent TSB.
Q: What if the owners wants to sell the house or apartment?
A: They will have to use the sale proceeds to redeem the outstanding mortgage and pay to the scheme the portion of the sale proceeds that corresponds to the scheme’s equity stake. For example, if the house cost €250,000 when it was bought and the State took a 20 per cent stake, the person will have been given €50,000 as part of the scheme. If the house is worth €300,000 when sold, that stake to be repaid will be €60,000.
Q: What if the owner’s financial situation improves? Can they buy out the stake?
A: Yes, there is an option, not an obligation, to do this. A maximum of two partial buyouts are allowed per year. Partial or full buyouts are based on the market value of the property at the time the buyout takes place. No other payments are due to the First Home scheme if the equity stake is bought out in the first five years of ownership.
Q: But what’s the small print in all of this? Are there charges?
A: From year six onwards scheme participants will be liable for a service charge starting at 1.75pc of the euro value of the original equity provided by the First Home scheme (the department says this is simple interest of 1.75 per cent of the portion of the purchase price that was provided by First Home, as opposed to 1.75 per cent of the total purchase price). This service charge will increase to 2.15 per cent from year 16 and to 2.85 per cent from year 30 (if applicable). Homeowners will have the option of paying this charge each year or deferring the payment until the property is sold.
Q: Finally, is there a time-limit on the scheme?
A: The Government has said it will be available to new homebuyers until 2025, but this timeframe may be extended.