Give Me a Crash Course in . . . the ‘help-to- buy’ scheme

How's the new first-time buyer's grant working out so far? Don't call it a first-time buyer's grant. That is not what it is at all, at all. It is a "help-to-buy" scheme. That is completely different.

How so? Does it apply to second-hand homes? Or second-time buyers? Is the grant being used to incentivise property developers to build new homes and will it see the cost of newly built homes climb by roughly the same amount as the grant?

Well, no, no, yes and probably. Okay, okay, it is a bit like the first-time buyer’s grant of old but the name is very different and a whole lot friendlier.

So, to go back to the first question, how is it working out? It has had a rocky enough start, to be honest. Under the scheme, as it was announced by Minister for Finance Michael Noonan in the budget, buyers of homes up to €600,000 would have been entitled to a tax rebate which would be capped at €20,000.

Under the rules as they were first announced, people would have had to borrow at least 80 per cent of the price of or they would not be eligible for the rebate.

And what was wrong with that? As the Central Bank pointed out, most first-time buyers do not borrow 80 per cent. In fact, the average mortgage loan for first-time buyers is just over 78 per cent so the average first-time buyer would have been excluded from the scheme unless they borrowed more than they needed.

And, as the Central Bank said, forcing people to borrow more than they might need and more than they could repay was a terrible idea.

So, the scheme was modified and now people have to borrow people at least 70 per cent of the price.

The grant is well and good but isn’t the big problem the issue of deposits? Does is solve that problem?

Sort of. A Central Bank rule means people must have a deposit of at least 10 per cent of the property price and that is only if the home they want costs less than €220,000. If it costs more, they need 10 per cent of the first €220,000 and 20 per cent of anything above that.

How does the scheme help them? The rebate offers a maximum of 5 per cent of the price of a home up to a maximum of €420,000. If a first-time buyer is looking to buy a home in Galway for €220,000, they could claim a rebate of 5 per cent – €11,000 – and add that to their own savings of €11,000 to make the 10 per cent deposit required (€22,000). They could then borrow the remaining 90 per cent – €198,000.

If they were buying a house in Dublin for €270,000 they would be entitled to a 5 per cent rebate of €13,500. But the deposit needed would be higher as the house costs more than €220,000.

A first-time buyer would need a deposit of 10 per cent of the first €220,000 (€22,000) plus 20 per cent of the other €50,000 (€10,000) for a total of €32,000, or €18,500 plus an income tax rebate of €13,500.

So, the scheme does help put deposit cash in a person's pocket. That might well be swallowed up by developers but that is a story for another day. So, what happened this week? The Government was forced to introduce a second change to the scheme by lowering the cap for the "help-to-buy" scheme for first-time buyers from €600,000 to €500,000.

Ever with an eye on a soundbite, Fianna Fáil objected to the €600,000 cap labelling it a “mansion grant”.

Could you buy a mansion in Dublin for €600,000? No, no, you could not but Fianna Fail don't have many TDs in Dublin so they probably don't know that.