Applicants for the Government's affordable housing schemes will be able to borrow from financial institutions instead of their local authority from the new year, following Bank of Ireland's decision to offer special loans to successful candidates.
The bank will offer loans of up to 97 per cent of the purchase price of the properties to qualifying affordable housing applicants. The properties are available at discounted prices.
The offer should, in some cases at least, help to remove the two large stumbling-blocks that stand between people on low to average incomes and the property ladder.
The first is not having sufficient income, according to the financial institutions' lending criteria, to borrow the sum needed to buy a property at post-boom urban prices.
Up to now, mortgage finance for affordable housing has been available only from local authorities through the Housing Finance Agency.
But the maximum loan available was €165,000 - not enough to buy in some urban areas even at the discounted prices.
The second, related problem is not being able to save enough to cover the 8 per cent deposit that is normally required by lenders.
With Bank of Ireland's Breakthrough mortgage, first-time buyers will have to save a deposit of only 3 per cent of the purchase price.
There is no limit on the loan size, subject to repayment capacity. Sole borrowers can borrow up to four or five times their income, and joint borrowers up to four-and-a-half times their income. Bank of Ireland's standard range of interest rates applies.
The good news for affordable housing applicants is that the Department of the Environment, Heritage and Local Government is negotiating with several other lenders to bring out similar affordable-housing-friendly mortgages next year.
The Minister for Housing and Urban Renewal, Mr Noel Ahern, says that he considers it appropriate that there is competition and choice in the market.
This means that affordable housing applicants may not have to settle for Bank of Ireland's interest rates.
The bank's special offer discount rates for new customers revert to a standard variable rate of 3.6 per cent - currently the highest rate in the market - after the short discount period.
Affordable housing applicants - indeed all Bank of Ireland customers - would be advised to demand to be put on to its lower-interest tracker mortgage.
But as most affordable housing costs less than €200,000, applicants will typically only qualify for the most expensive Bank of Ireland's tracker mortgage, which has a rate of 3.3 per cent.
Local authorities charge a variable rate of 2.95 per cent.
The disadvantage is that the maximum term available to applicants who get their loan from the local authority is 25 years, compared to 35 years at Bank of Ireland.
It is anticipated that 11,000 affordable homes are due to become available over the next two to three years. Although the percentage of discount on the price of affordable housing varies according to the location and the type of scheme, as much as €50,000 can be knocked off standard selling prices.
But there the good news pretty much ends. The schemes are typically oversubscribed, with long waiting lists. Application fees must be paid, with no guarantee of success.
People on local authority housing lists and people from the locality usually receive priority.
A points system operates under certain schemes. For instance, under the Part V Affordable Housing Scheme in the Dublin City Council area, applicants are awarded the most points if they earn less than €25,395, have been in continuous employment for five years and have lived in the area for 10 years.
Although there are no set income limits under certain schemes, large groups of people living in urban areas fall through the net.
They earn too much to be considered an affordable housing priority, but they cannot afford full-price properties, or manage to save an 8 per cent deposit.
Unfortunately for this group, Bank of Ireland has no plans to extend its 97 per cent finance offer to all customers.
Affordable housing: the rules
Under the 1999 Affordable Housing Scheme, a single- income household must have annual gross income of no more than €36,800. The limit for a double-income household is €92,000.
The Part V Affordable Housing Scheme and the Affordable Housing Initiative do not have any maximum salary thresholds. Any household that would spend more than 35 per cent of its net disposable income on mortgage repayments on a suitable house can qualify in theory.
Under a clawback measure, if a house purchased at a discount is resold within 20 years of the date of purchase, the person must pay the local authority a percentage of the proceeds of the sale.
