Householders who bought affordable homes using local authority mortgages are being faced with paying hundreds of thousands of euro in clawback penalties if they try to change their mortgage provider.
Those who bought through shared-ownership schemes are also being hit with clawback fees if they try to take on the full mortgage for their homes.
Both groups are forced to pay huge penalties based on the current market value of their houses, even though they are not selling their homes, because of anomalies in the Department of the Environment legislation on affordable housing. A clawback provision was written into the legislation to stop people who had availed of the affordable-housing scheme and bought houses at substantial reduction on the normal market values, from profiteering by selling their houses privately for the full market price.
Under the terms of the 1999 Affordable Housing Scheme, anyone who sold their house within 10 years of purchase had to pay back the full percentage discount they received from the council.
For example, if a property worth €200,000 has been sold through the affordable housing scheme at a 20 per cent discount, ie €160,000, and is resold for €300,000, then the council keeps 20 per cent of this resale, ie €60,000. The percentage repayable to the council is gradually reduced after 10 years and those selling up after 20 years make no clawback payment.
In the last two years, Bank of Ireland, EBS and IIB, have been offering mortgages to affordable house buyers; however, in the initial years of the scheme home loans were only available through local authorities. Early buyers who now want to move their mortgage to a bank, to avail of remortgaging or other banking options, are forced to pay the council the clawback penalty on the current market value, even though they are not earning money through a sale.
Martina Maher, who moved into her affordable home in July 2004, says she feels "trapped" by the council mortgage.
"I was a council tenant for 10 years before we bought and I still feel this is not my home, it's the council's. I don't want to have my mortgage with them. I just want to be free of them now and be with a bank. I should be able to change my mortgage provider - it's discrimination that I'm not."
Shared-ownership buyers are also victims of the clawback loophole. Under the shared ownership scheme the buyer pays part mortgage and part rent to the council. The percentage of mortgage taken on by the buyer ranges from 40 per cent to 75 per cent of the purchase price.
The buyer is under an obligation to buy the council out of its original stake in their house at the end of a defined period, usually 25 years, and the rental payments are offset against this purchase.
However, if the shared ownership buyer has an upturn in their financial circumstances and wants to take on the full mortgage they pay the penalty, even though they are not selling up and therefore not profiteering.
Paul Keane from Ringsend bought his house through the shared ownership scheme in 2003. At the time of purchase he was told there was an option to move to a full mortgage at a later date, but he says he was not told there would be a penalty.
"I applied 15 months ago to go on a full mortgage. First of all I was told it would take a year, then I was told I would have to pay the clawback and that the market value of the house was now €326,000. We couldn't pay half of that money . . . I'm 47 years of age, I just want to own my own home."
Dublin City Council is aware of the anomaly and has asked the Department of the Environment to review the legislation.
"The way the legislation is written, changing to a bank or ending a shared ownership agreement is redeeming the mortgage," Tony Flynn, senior executive officer with the council, said. "Once the mortgage is redeemed, unfortunately the clawback kicks in."
A spokesman for the department says it has received similar letters from several local authorities and is studying the legislation, but there are no plans as yet for new legislation.
