Call for State equity loan to help first-time buyers

A GOVERNMENT equity loan scheme of up to 30 per cent of the price of a new home should be introduced for qualified first-time buyers, the Affordable Homes Partnership (AHP) has said.

It said that the credit situation for first-time buyers had dramatically worsened in the last eight weeks, with some banks and building societies demanding 20 per cent of the purchase price of new homes as a deposit.

The homes partnerships believes that an equity loan scheme would help first-time buyers who cannot raise the large deposits currently being demanded by the banks.

The partnership, which will help 3,500 people on low and middle incomes to purchase their homes this year, is also recommending that those who qualify for the scheme should be allowed to buy on the second-hand market.

Currently all homes bought through the partnership are new apartments or houses.

The AHP has recommended replacing the present system, where it subsidises housing by paying developers up to €70,000 for houses and €50,000 for apartment, with the equity loan scheme.

The proposals are contained in a report called Increasing Affordable Housing Supply, which was commissioned by the Government to examine ways of improving public access to affordable housing.

Through an equity loan scheme, the Government would advance between 20 and 30 per cent of the purchase price to those who qualify under the partnership - single people on incomes of less than €58,000 a year and €75,000 for a couple.

Significantly, the AHP is also calling for an end to the current system of "clawback" whereby a purchaser does not have to pay back the money advanced by the partnership if he or she keeps their property for more than 20 years.

Currently, purchasers have to pay back the entire sum advanced by the partnership if they sell their home within 10 years.

The figures declines year on year until there is no payback if the purchaser decides to sell the house on after 20 years.

Under an equity loan scheme, the purchaser would have to pay back the money advanced by the Government over the course of the loan or if they sell the property on, irrespective of how long they remain in their home.

The AHP estimates that the Government could pay for itself because the Government would recover 13.5 per cent of the purchase price of the home through VAT while eventually the loan would be paid back.

AHP chief executive John O'Connor said that abolishing the clawback would circulate more money back for affordable housing and would also encourage those who genuinely want to purchase a home rather than those who were just looking for a major discount.

"We believe that the current clawback system is not an efficient use of taxpayers' money.

"By not forgiving the discount, we can help more people," Mr O'Connor said.

He also said that allowing those to enter the second-hand market to buy homes up to the value of €350,000 would increase the availability and variety of affordable homes for those who want to buy them.

"We have found that affordable home purchasers wanted to be treated like anybody else buying a home. We want an open market for purchasing to allow people to look after themselves," he said.

The proposals by the partnership, which have been put out for public consultation, have been welcomed by the Construction Industry Federation (CIF), which has been calling for measures to stimulate the moribund housing market.

It has already recommended that the Government use the National Treasury Management Agency to advance money to the banks to get over the credit crunch.

CIF spokesman Martin Whelan said: "The demographics are such that there are a lot of purchasers out there who want to get on to the house market. It makes absolute sense to promote measures that would put liquidity into the market."