Shared equity scheme takes fresh hit

The Government’s shared equity loan scheme – its flagship initiative to help struggling home buyers – is in danger of being scuttled before leaving the harbour. While the Government and industry are all for it, everyone else seems to think it will only add to already choppy waters.

Under the scheme, the State would pay 30 per cent of the price of a home in order to make it more affordable for purchasers. But from the get-go, banks, which are meant to be divvying up half the €150 million pot to fund the scheme, have voiced disquiet about how the equity/debt part would work and what interest would be applied. The Government is still trying to get them on board.

Last month the Economic and Social Research Institute raised perhaps the biggest criticism of the scheme – namely that such a demand-side initiative in a supply-constrained market would only fan price inflation.

Additional debt

Now the Central Bank of Ireland has raised more issues. In a submission to the Oireachtas Joint Committee on Housing, the regulator said its overall view of the scheme would depend on how the additional financing was treated. If it was merely additional debt then households could quickly find themselves overstretched, it said.

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It also wondered whether the scheme would leave participating banks in breach of the current mortgage rules. The rules, introduced by the Central Bank in 2015, curtail mortgages to 3.5 times a buyer’s salary and to a minimum deposit of 10 per cent from first-time purchasers. What if banks are taking a separate equity slice of the property via the shared equity scheme?

Opposition is clearly having an impact. At the outset, Minister for Housing Darragh O'Brien was gung-ho – saying a similar scheme in Britain increased supply by 50 per cent and that it hadn't led to price inflation. Now he's playing down the potential impact, noting €150 million is small in the context of an €11 billion Irish mortgage market and that the scheme is really only targeting about 4,000 potential buyers. It remains to be seen whether it will even get that far.