The Government's €500 million plan to provide mortgages to those turned down by the banks is a failure, writes JACK FAGAN

A PLAN, sponsored by the Government, to make it easier for first-time buyers to get mortgages has flopped because of stringent qualifying conditions and needless bureaucracy.

Towards the end of 2008, when the mortgage market began to dry up because of the banking crisis, the Department of the Environment was portrayed as rushing to the rescue of young workers unable to get funding from the banks and building societies.

The €500 million mortgage plan announced by Minister for the Environment John Gormley was seen as a serious alternative for those anxious to get on the property ladder.

The grand plan, promoted as the Home Choice Loan, has turned out to be a “No Choice Loan”. The difficulties in complying with the terms has meant that, almost 18 months after the launch of the scheme, only three people in the entire country have managed to draw down mortgages (each of them for less than €285,000) from the vast fund.

Even with the poor response, the Department has so far failed to make any radical changes in the qualifying conditions to meet consumer needs. To get a loan, applicants have to earn in excess of €35,000 and more than €45,000 in the case of a couple. More importantly, they need to show that they have been refused mortgages by two banks or building societies.

Having to provide evidence of two rejections by financial institutions will always mean that the number of applications making it through to the Government scheme will be on the low side.

Not surprisingly, mortgage expert Frank Conway finds serious fault with the scheme and says it is time for it to be reorganised and rebranded. He argues that it needs to become what it says, a serious alternative to the choice of mortgages available, not just “a hidden and unknown product that even those charged with selling it are not doing”. To get the scheme working, Conway, a director of Irish Mortgage Corporation, suggests that the Department should no longer look for two rejections by mainline lenders. He also recommends that the length of mortgages should match the main lenders and be extended to 35 years.

In addition, he wants the qualifying income to be lower than €35,000 in the present difficult economic climate. Deposits coming from gifts, especially from parents, should be acceptable, he says.

He also points out that one of the key stumbling blocks to mortgage approval under the scheme revolves around the condition that the applicant must be in permanent employment for two years. Employees who return to work in the same area – like accountants, solicitors, skilled crafts and the so-called smart economy – should be considered worthy and suitable applicants.

Conway would also like to see increases in mortgage interest rates capped at, say, 6 per cent over its lifetime with a 2 per cent annual cap to protect buyers from excessive increases in repayments.

On the face of it, the scheme could be of immense benefit to many first-time buyers if the qualifying conditions were changed. Despite all the claims by the banks that mortgages are still being drawn down, estate agents are seeing little evidence of it through houses or apartment sales. Hence the stagnant market.

The Government scheme offered 92 per cent loan-to-value mortgages subject to a maximum of €285,000 on new or second-hand homes, as well as homes built by the applicant. The loan is marketed as a normal capital and interest-bearing mortgage currently set at 2.9 per cent.

It all sounds grand, but the scheme simply does not work. It is all the more surprising, therefore, that the Department came out strongly this week in defence of the scheme, pointing out that it would be “premature to remove a scheme that provides an important fallback in a still credit-constrained market”.

What a load of rubbish. Clearly the money is winging its way to Greece as we speak.