Government to change first-time buyers scheme
Central Bank is understood to have raised concerns about the Budget 2017 proposal
The Government is to table significant amendments to one of its signature budget proposals, the income tax rebate for first-time buyers.
The Government is to table significant amendments to one of its signature budget proposals, the income tax rebate for first-time buyers, after concerns were raised by the Central Bank and Fianna Fáil.
The Irish Times has learned that Minister for Finance Michael Noonan has been given Cabinet approval to reduce the thresholds for the scheme, which is designed to help first-time buyers accumulate a mortgage deposit, from its budget day limit of homes to the value of €600,000.
The original threshold had been criticised as a “mansion grant” by Fianna Fáil.
It is also understood that the Central Bank raised concerns that the scheme could encourage buyers to take on too much mortgage debt.
The concerns raised by the Central Bank will be addressed in the Finance Bill, to be published on Thursday.
However, any changes to the thresholds are likely to be made at a future date, expected to be when the Bill is at committee stage.
The new “help-to-buy” plans propose a rebate of income tax paid over the previous four years.
The rebate will be worth up to 5 per cent of the price of a home to a value of €400,000, allowing for a maximum rebate of €20,000.
However, the initial plans outlined that first-time buyers of homes up to €600,000 would also be entitled to the rebate, although it would be capped at €20,000.
Fianna Fáil’s housing spokesman Barry Cowen wants the entire scheme capped at €400,000.
However, Government sources claim that Fianna Fáil had already supported the principle of such a scheme.
The sources insisted the scheme will still only apply to new homes and self-builds and will not be extended to second-hand homes, as had been called for by Fianna Fáil.
Central Bank rules say that first-time buyers must accumulate a 10 per cent deposit on the first €220,000 of the value of a home, and 20 per cent of any value thereafter.
The Finance Bill will contain the €600,000 threshold but sources said this week the Cabinet discussed allowing this to be reduced to a lower level, possibly about €500,000, when the Bill reaches committee stage.
One source said this would be “to allow Fianna Fáil have a win”.
“Michael [Noonan] said he was open to it, but we’ll see how it goes,” said a Minister.
“He got a mandate to change it from the Cabinet. But I’m not sure we should give in to Fianna Fáil.”
Another well-placed source said that a cap anywhere above €400,000 “is a matter of judgment”, adding that a final threshold had yet to be decided upon.
The Finance Bill, which gives legislative effect to budgetary measures, will be published by Mr Noonan on Thursday afternoon.
Minister for Housing Simon Coveney last week stood over the first-time buyer plans, which were spearheaded by him and Mr Noonan.
“I am more than willing to listen to Fianna Fáil’s concerns, but Fine Gael stands over the scheme,” he said.
The budget announcement stipulated that applicants to the scheme must take out a mortgage of “at least 80 per cent of the purchase price” of the home.
Sources said the Central Bank raised concerns about this because it would encourage buyers to take on more debt than may be necessary.
It is understood the bank pointed out that the average mortgage for first time buyers is now 78.7 per cent of the value of a home and that Mr Noonan’s initial scheme would incentivise people to take on more debt.
It is expected that the minimum size of the mortgage that must be taken out in order to qualify for the scheme will be changed in Thursday’s Finance Bill to reflect the Central Bank’s advice.
While Mr Noonan said he had kept the Central Bank abreast of his plans in advance of the budget, a Government source said: “The idea of a scheme and the details of a scheme are different.”
The source said the Department of Finance and Central Bank are working together towards the same policy aims.
The Government will publish two Finance Bills. The one to be published on Thursday will be shorter than usual, with another coming in the weeks ahead.
Thursday’s bill will also contain measures to clamp down on tax loopholes by so-called “vulture funds” holding Irish property.