New mortgage scheme will stoke up house prices, says analyst

Government plan is ‘geared towards a market that doesn’t really exist’

The Government’s new scheme of local authority mortgages is likely to bring an increase in house prices, according to a housing expert.

Mel Reynolds, housing policy analyst and architect, said the scheme is “geared towards a market that doesn’t really exist”.

Minister for Housing Eoghan Murphy unveiled a new scheme of local authority mortgages that will be available from next week. Under the scheme, the Government will finance local authorities to provide mortgages to people who have been turned down by banks.

“When you drop your interest rate by 1 per cent, the price goes up by about €30,000 to €40,000,” Mr Reynolds said.


“So straight away from today’s announcement, I would say pretty much guaranteed [THERE WILL BE]10 per cent increase in sales prices.

“If your [price range is] around €300,000 to €320,000, the price will go up by €30,000 and that means that land values will go up by about 20-30 per cent as well.

“It’s a bit like the first time buyers’ grant, if you give everyone an incentive, prices are going to rise.

“What it will do is give a bolt to new home prices, I can’t really see it improving affordability at all.”

Mr Reynolds added he anticipated a “limited take-up” of the scheme.

“There’s nothing really for sale around those levels as far as I can see. In Dublin the average sales price for a new house is about €440,000.

“Irrespective of whether you think the measure is inflationary or not, if it’s geared towards a market that doesn’t exist, it’s not going to do much.”

Affordable housing

Mr Reynolds said the Government should instead focus on affordable housing schemes such as Ó Cualann Cohousing Alliance, a co-operative housing body which is currently building an estate of 49 houses in Ballymun.

“Instead of these token gestures that will more than likely inflate prices and inflate land prices, what they should be doing is getting more into active land management partnering up with co-ops, people who don’t have a huge profit margin, and building schemes all over the country.”

The low-interest rate mortgages will be available to purchasers of properties worth up to €320,000 in the greater Dublin area, Cork and Galway, while the ceiling in the rest of the country will be €250,000.

The scheme will be reserved for borrowers with an annual gross income of no more than €50,000, or €75,000 for couples. Central Bank rules will apply so borrowers will be able to take a mortgage for 90 per cent of the property’s value. Borrowers will be able to choose a fixed rate of 2-2.25 per cent over 25-30 years, terms unavailable from any bank.

David Hall, CEO of the Irish Mortgage Holders Association said the scheme “is a further distraction and decoy from the real issue”.

“Ultimately the issue is around supply. It may help some people but it is not the long term solution. If you look at the Ó Cualann Cohousing Alliance - why isn’t that being replicated countrywide?

“The biggest land hoarder in the State is the State and the local authorities. The land is there.”

Mr Hall said the current housing system is “far from organised and far from functional”.

“There has been ample time to change things. ‘Rebuilding Ireland’ does not seem to be working and it is time now for radical change. The Government are not even sure how many new homes were built last year.”

John Mark McCafferty, CEO of Threshold said “the objective for any kind of affordable purchase scheme needs to be that it’s more about insuring that the costs of the housing or the apartments are lower rather than just access to credit”.

Political reaction

Fianna Fáil’s housing spokesman Barry Cowen said he welcomed elements of the Government’s low interest mortgage scheme but that it was not a “great solution”.

"It doesn't do a whole lot. It's only part of the solution," he told RTÉ's News at One.

Mr Cowen said the Government’s efforts to increase the supply of housing over the past ten years had “left a lot to be desired”.

The Offaly TD said the key to affordability and was supply, and the key to supply was construction costs, about which the Government had failed to take any action.

Sinn Féin said the Government’s new home loan scheme was “a disappointing package” which would assist people to buy overpriced houses rather than bringing prices down.

The party's housing spokesman Eoin Ó'Broin said. "There are already two Government loans to local authorities and the Housing Agency. This scheme is very similar," he told RTÉ's Morning Ireland.

“It is assisting people to buy overpriced houses than bringing down prices.”

The Dublin Mid-West TD said there is still too much reliance on the private sector, low levels of investment and “no clear evidence that what the Government is offering is of real value to working families”.

Solidarity TD Ruth Coppinger said the scheme would not provide “one affordable home for people”.

“The Government are simply tinkering around the edges of the property market. There are no ‘affordable’ homes being built, instead what we have is developer-led housing aimed at maximising profit.

“This proposal does nothing to challenge that or to provide new homes below market rates.”

The Dublin-West TD said the scheme is instead “likely to prop up over inflated house prices”.

“The Government should focus on providing affordable housing, using public land banks, not contributing to the housing bubble,” she said.

Sarah Burns

Sarah Burns

Sarah Burns is a reporter for The Irish Times