State to provide €750m in loans to small builders

More than 7,500 homes expected under Home Building Finance Ireland scheme

Eoghan Murphy, Minister for Housing and Paschal Donohoe, Minister for Finance  arriving at the launch of Home Building Finance Ireland. Photograph: Tom Honan

Eoghan Murphy, Minister for Housing and Paschal Donohoe, Minister for Finance arriving at the launch of Home Building Finance Ireland. Photograph: Tom Honan

 

More than 7,500 homes are expected to be built over the next five years by small and medium-sized developers using a €750 million State loans scheme.

Builders who have been unable to secure loans from banks or other lenders will have access to five-year loans of up to €35 million, for developments ranging in size from 10 to about 200 homes, from new agency Home Building Finance Ireland (HBFI).

A developer must have secured or submitted planning permission for a project, the scheme must be deemed commercially viable by HBFI, and the borrower must provide a minimum of 20 per cent equity, which can include the value of the site.

The agency will provide between 50 and 80 per cent of the funding for the development and will charge interest on commercial market terms, likely to be in the region of 5-8 per cent.

The scheme, which was announced over a year ago as part of Budget 2018 but only recently signed into law, aims to fill a gap in the market where smaller builders have been unable to secure finance from the traditional banking sector. However Minister for Finance Paschal Donohoe said this does not mean the State will be exposed to risky loans.

“What we are not looking to do is take on board projects that are seen as being too risky by other lenders within the State. We are looking to address a market opportunity.”

Commercial lenders had shown little interest in lending money for smaller projects with lower potential returns Mr Donohoe said.

“There are projects inside certain loan-to-cost ratios that our analysis indicates are not being funded at the moment and this provides the rationale for an organisation such as this one,” he said.

Risk

“It is not about taking on board risk that others are not willing to do. This is a loan-based organisation, but there are different market failings at the moment that are leading to an additional form of housing supply not being delivered and it is the role of this organisation to deliver that.”

HBFI would also help smaller builders in making their loan applications “something commercial lenders have no incentive to do”, Mr Donohoe said.

There was also the potential for the State to earn a return on the loans the Minister said.

“There is no question that this organisation will be providing cheap money to anyone . . . Any profit earned will flow back into State coffers. It has the potential to deliver a commercial return for the State.”

HBFI director Michael Broderick said he was “cognisant we are lending taxpayers’ money”and only viable housing projects would be considered. The organisation was targeting developers who were building for first-time buyers, and building costs would be in the region of €200,000, he said.

The Construction Industry Federation (CIF) said the scheme would help increase housing particularly outside the greater Dublin area.

“In 2017, the CIF identified a market failure in finance for regional housebuilders, despite localised pockets of viable demand in rural towns and on a regional basis.” It along with other initiatives such as the Land Development Agency and the Local Infrastructure Housing Activation Fund would have a “sustained and sustainable impact on delivery of viable housing” the CIF said.