How to make your new home more affordable: Three ways the Government will help

It is no secret that house prices are through the proverbial roof in Ireland, and the closer you get to the cities, the farther out of reach the prospect of buying your first home may seem.

The Central Statistics Office’s latest residential property price index suggests that while the pace of house price growth may have slowed somewhat in recent months, average house prices still rose by an eye-watering 13 per cent during the 12 months to July this year. That puts current prices at a similar level to those observed at the height of the Celtic Tiger in April 2007.

Despite those high prices and growing cost-of-living pressures, many potential first-time buyers believe that now may be the right time to buy. Outside of that natural desire to put down roots, it’s also a case of putting their hard-earned money into their own home as opposed to the pocket of a landlord. Paying rent which, as friends and relations so often remind them, is “dead money”.

Those with savings in hand and looking to buy in a private development right now should certainly explore the possibilities presented by the Government’s help-to-buy incentive and the first-home scheme, which may not only help them to buy a home but could leave them with mortgage repayments similar to or lower than their current rental costs.

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A lot of young people are listening to what I call barstool advisers — grandads, nannies, aunties

The one snag for those who earn enough to qualify for such schemes, however, is the huge level of demand for qualifying homes. For lower earners and single buyers meanwhile, there is the possibility of securing an attractive mortgage through a local authority. This cohort should be aware, however, that such loans come with pricey mortgage-protection insurance.

And for those planning to apply for a mortgage in the future, it’s worth noting Bank of Ireland’s recent signalling of its intention to tighten up its affordability criteria against the backdrop of rising interest rates and living costs.

While the bank has told mortgage brokers it will continue to monitor the repayment capacity of new mortgage applicants against potential rate increases that may occur over the life of a loan, it has yet to indicate what changes it will make to its stress testing.

“It is important to understand what banks look at when underwriting a mortgage application,” says Martina Hennessy, managing director of digital-mortgage platform Doddl. Evidence that you will be able to make your mortgage repayments is a key component of your application and banks will look at the six-month period before your application, she says. “Ensure rent is evident as an electronic transfer on bank statements and that savings are consistent ... Banks do not look favourably on account depletion for discretionary spending,” Hennessy adds.

“I would tell first-time buyers to go for a property as soon as possible,” says Paul Merriman, financial adviser and founder of the AskPaul financial-advice service.

“A lot of young people are listening to what I call barstool advisers — grandads, nannies, aunties — saying: ‘Don’t buy. The crash is around the corner.’ People have been saying that for seven years and property prices are up nearly 60 per cent,” he says. “I would say try to get yourself mortgage-ready.”

If you are looking to buy your first home but are not sure you have adequate resources, here are the Government schemes currently available to first-time buyers.

Help-to-buy incentive

The help-to-buy incentive is a Government tax-refund scheme designed to help first-time buyers reach the 10 per cent deposit required to buy a newly built or self-built home. It is not possible to avail of the scheme if you are buying a second-hand home. “It would be great to see a similar scheme for first-time buyers looking to purchase a second-hand property,” says Hennessy.

With help-to-buy, the maximum tax refund is 10 per cent of the value of the property up to a maximum of €30,000. Therefore, if you qualify for the full €30,000 and the house you want to buy costs €300,000, you will not have to have more saved to pay your deposit, although your lender will likely require evidence of good money management before approving your mortgage. However, if the property costs €400,000, you will have to add €10,000 in savings to the help-to-buy rebate to reach the €40,000 deposit. The rebate is available on properties valued at €500,000 or less.

To qualify for the rebate, the potential buyer must have paid the equivalent amount of income tax or DIRT within the preceding four years. For joint buyers, the rebate is based on your combined tax contributions. It is likely that those who have been working full time over the past four years will qualify for the full €30,000.

To be eligible, the buyer must never have bought or built a house by themselves or with someone else. If one person in a couple has previously purchased a property, in Ireland or abroad, that couple would not qualify for the grant. It is important to note you must live in the house as your main residence for five years, or Revenue can revoke the rebate. The help-to-buy incentive is scheduled to run until the end of this year, and the future of the scheme is under review in the upcoming budget. You can apply through Revenue’s myAccount page.

First-home shared-equity scheme

The Government’s first-home scheme — which Minister for Housing Darragh O’Brien described as “the most significant intervention in housing in a generation” when it was announced in July — is aimed at helping first-time buyers bridge the gap between what they can borrow under the Central Bank’s mortgage-lending rules, and the price of a new home.

As with the help-to-buy incentive, the first-home scheme is not available for those buying a second-hand home or, in this case, a self-build. “With the cost of new homes, this scheme will really only benefit middle-income purchasers,” says Hennessy.

The first-home scheme is a shared-equity scheme in which the Government takes a stake in your home in return for a percentage of the price of a property in a private development. First-time buyers can receive up to 30 per cent of the value of their home, or up to 20 per cent if they also avail of the help-to-buy incentive. There are limits on the value of the property you can buy depending on the local authority area: for example homes are capped at €450,000 in all of Dublin and Cork cities, €400,000 in Galway city and €350,000 in Limerick city and Waterford city. Crucially, to be eligible for the scheme you must borrow the maximum sum possible to you from a participating lender — that is 3.5 times your yearly income.

For example, if a couple jointly earn €90,000 a year, they would have to get a mortgage of 3.5 times that, €315,000, to qualify for the first-home scheme. If they wanted to buy a new home for €400,000, and paid the 10 per cent deposit with €30,000 from help-to-buy and €10,000 in savings, they would still be short €45,000. As it is below 20 per cent of the property price, they could use the first-home scheme to cover that €45,000 shortfall.

As the Government will own an equity stake in your home, the value of that percentage will rise and fall depending on the value of your house. Therefore, if you sell your home at a higher price the Government will earn an increased sum on its share. You will have the option to buy back the Government’s equity stake, but you do not have to.

There are no charges for the scheme in the first five years: however, you will be charged a service fee from year six. If you take a mortgage exemption from a lender, meaning you’re offered an opportunity to borrow above 3.5 times your yearly salary, you will not qualify for the first-home scheme. You can apply at firsthomescheme.ie.

Local-authority home loan

A local-authority home loan is a Government-backed mortgage for which first-time buyers can apply through their local council. A potential buyer can borrow up to 90 per cent of the market value of a new, second-hand or self-built property at fixed interest rates.

It also includes the purchase of homes through State schemes such as the tenant purchase scheme and affordable housing schemes, but not the First-Home scheme. In Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow, the maximum price of a property that can be bought under the scheme is €320,000, while it is capped at €250,000 in the rest of the country.

However, there is a compulsory expensive mortgage-protection policy which must be taken out in conjunction with a local-authority home loan. The policy is more expensive than market rates — a €250,000 mortgage, for example, will incur an annual charge of €1,337/€1,114 a month, given that the mortgage-protection policy is applied at a rate of 0.5348 per cent for 2022 (down from 0.55 per cent previously). Were the homeowner able to access this policy in the open market, they could secure it for less than €20 a month.

To be eligible for a local-authority home loan, the applicant must have been in employment for a minimum of two years as the primary earner or for a minimum of a year as a secondary earner. The local-authority home loan may be of particular interest to single buyers who may struggle to reach the earning levels needed to purchase under the first-home scheme.

As a single buyer your gross yearly income must be below €65,000 in Cos Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow and below €50,000 in all other counties. As joint applicants, your gross yearly income must be below €75,000 in all counties. Applicants must also provide proof they have been refused a mortgage from two regulated financial providers.

This loan currently offers two attractive fixed-interest-rate products: 2.845 per cent fixed for up to 25 years (APR 2.88 per cent) and 2.945 per cent fixed for up to 30 years (APR 2.99 per cent), subject to change. You must apply to the local authority for each area you are looking to buy in, and more information can be found at localauthorityhomeloan.ie.

“This is a really good scheme for people who are on lower incomes who can find somewhere to live under €320,000 ... that’s their next challenge, but that should be easier for people outside of Leinster,” Merriman says.

The bureaucracy of going through the local authority is a challenge, says Merriman, “but if you get through the process, it’s a great mortgage to get”.

I’d be encouraging people to consider 20-year fixed rates if you can

Merriman notes that rising interest rates are now a huge concern for potential first-time buyers, with the European Central Bank raising rates by 1.25 per cent since July. “You might have a first-time buyer coming in today and looking at a rate of 2 per cent or 2.5 per cent and by the time they close on a property in six months’ time there’s not a hope that that rate is going to be 2.5,” he says. “They’re going to get an increased rate.”

There seems to be more single buyers coming to the new-homes market, says Merriman: “When I started 20 years ago, I don’t think I ever worked with a single applicant. Now a lot of people are coming to us saying, ‘I’m single, what hope do I have?’ Aside from dating apps, Merriman jokes, a local-authority home loan is an attractive offer for someone looking to buy their first home on their own. He also suggests that any potential buyers — single or couples — may have the choice to broaden their search beyond cities and towns if they have the opportunity to work remotely. But make sure it’s somewhere you really want to live, he advises, otherwise it’s not worth the compromise.

In terms of mortgage products, Merriman would advise first-time buyers to consider long-term fixed rates. “There’s one lender, Finance Ireland, it’s quite expensive at the moment but I’d be encouraging people to consider 20-year fixed rates if you can,” he says. “The main banks only do 10-year fixed rates but there’s the possibility after 10 years you won’t be able to afford your mortgage. If rates keep going the way they’re going, we could be in real difficulty.”

“Over the past decade fixed rates have been lower than variable rates and as such have been hugely popular among first-time buyers,” says Hennessy. “In the current rate environment, where rate increases are expected, first-time buyers are locking down fixed rates of average five-year fixed term so that they have security over their repayments while they settle into their new home,” she says. “Mortgage terms of up to 35 years are available: the longer the term, the lower the repayment but the more interest you will pay over the lifetime of the mortgage.” Another downside of longer-term mortgages is that you may have to pay a fee to exit it if you decide to trade up.

The help-to-buy and first-home schemes: How they might work in practice

The following are some examples of how first-time buyers could use the help-to-buy incentive and the first-home scheme to buy a new home in developments around the country, depending on their annual earnings:

In the examples you can see the first-home scheme is used to cover the shortfall between the mortgage the buyer can afford and the price of the home after the deposit has been paid (using the Help to Buy incentive). If there is no shortfall, the buyer does not qualify for the first-home scheme.

Ravens Mill, Rolestown, North Dublin

First-home-scheme price ceiling for Dublin: €450,000

Three-bed semidetached house

Earning €90,000 a year

Purchase price: €435,000

Help-to-buy: €30,000

Savings needed for deposit on top of help-to-buy: €13,500

First-home scheme = €76,500

Mortgage = €315,000 (Earnings x 3.5)

• Haven Green 4-year fixed @ 2% over 30 years = €1,164.30 / over 35 years = €1,043.48
• Haven 10-year fixed @ 2.85% over 30 years = €1,302.71 / over 35 years = €1,186.06
• Finance Ireland 20-year fixed (LTV greater than 70% less than or equal to 80%) @ 3.25% = €1,370.90 / over 35 years = €1,256.65
• AIB Variable (LTV greater than 80%) @ 2.95% over 30 years = €1,319.57 / over 35 years = €1,203.51
• BOI Variable (LTV greater than 80%) @ 4.2% over 30 years = €1,540.40 / over 35 years = €1,432.78

Earning €100,000 a year

Purchase price: €435,000

Help-to-buy: €30,000

Savings needed for deposit on top of help-to-buy: €13,500

First-home scheme: €41,500

Mortgage = €350,000 (Earnings x 3.5)

• Haven Green 4-year fixed @ 2% over 30 years = €1,293.67 / over 35 years = €1,159.42
• Haven 10-year fixed @ 2.85% over 30 years = €1,447.45 / over 35 years = €1,317.85
• Finance Ireland 20-year fixed (LTV greater than 70% less than or equal to 80%) @ 3.25% = €1,523.22 / over 35 years = €1,396.28
• AIB Variable (LTV greater than 80%) @ 2.95% over 30 years = €1,466.19 / over 35 years = €1,337.23
• BOI Variable (LTV greater than 80%) @ 4.2% over 30 years = €1,711.56 / over 35 years = €1,591.98

Gort na Fuinse, Galway

First-home-scheme price ceiling for Galway county: €350,000

Three-bed semidetached house

Earning €60,000 a year

Purchase price: €295,000

Help-to-buy (@ 10%): €29,500

First-home scheme: €55,500

Mortgage: €210,000 (Earning x 3.5)

• Haven Green 4-year fixed @ 2% over 30 years = €776.20 / over 35 years = €695.65
• Haven 10-year fixed @ 2.85% over 30 years = €868.47 / over 35 years = €790.71
• Finance Ireland 20-year fixed (LTV greater than 70% less than or equal to 80%) @ 3.25% = €913.93 / over 35 years = €837.77
• AIB Variable (LTV greater than 80%) @ 2.95% over 30 years = €879.72 / over 35 years = €802.34
• BOI Variable (LTV greater than 80%) @ 4.2% over 30 years = €1,026.94 / over 35 years = €955.19

Walkers Gate, Kildare Town

First-home-scheme price ceiling for Kildare: €400,000

Three-bed semidetached house

Earning €90,000 a year

Purchase price: €355,000

Help-to-buy: €30,000

Savings for deposit on top of help-to-buy: €5,500

First-home scheme: €4,500

Mortgage: €315,000 (Earning x 3.5)

• Haven Green 4-year fixed @ 2% over 30 years = €1,164.30 / over 35 years = €1,043.48
• Haven 10-year fixed @ 2.85% over 30 years = €1,302.71 / over 35 years = €1,186.06
• Finance Ireland 20-year fixed (LTV greater than 70% less than or equal to 80%) @3.45 % = €1,405.71 / over 35 years = €1,292.76
• AIB Variable (LTV greater than 80%) @ 3.15% over 30 years = €1,353.67 / over 35 years = €1,238.80
• BOI Variable (LTV greater than 80%) @ 4.5% over 30 years = €1,596.06 / over 35 years = €1,490.76

Earning €80,000 a year

Purchase price: €355,000

Help-to-buy: €30,000

Savings for deposit on top of help-to-buy: €5,500

First-home scheme: €39,500

Mortgage: €280,000 (Earning x 3.5)

• Haven Green 4-year fixed @ 2% over 30 years = €1,034.93 / over 35 years = €927.54
• Haven 10-year fixed @ 2.85% over 30 years = €1,157.96 / over 35 years = €1,054.28
• Finance Ireland 20-year fixed (LTV greater than 70% less than or equal to 80%) @3.25 % = €1,218.58 / over 35 years = €1,117.02
• AIB Variable (LTV greater than 80%) @ 3.15% over 30 years = €1,172.95 / over 35 years = €1,069.78
• BOI Variable (LTV greater than 80%) @ 4.5% over 30 years = €1,369.25 / over 35 years = €1,273.58

Castle Heights, Carrigaline, Cork

First-home-scheme price ceiling for Cork county: €350,000

Three-bed semidetached house

Earning €80,000 a year

Purchase price: €335,000

Help-to-buy: €30,000

Deposit on top of help-to-buy: €3,500

First-home scheme: €21,500

Mortgage: €280,000 (Earning x 3.5)

• Haven Green 4-year fixed @ 2% over 30 years = €1,034.93 / over 35 years = €927.54
• Haven 10-year fixed @ 2.85% over 30 years = €1,157.96 / over 35 years = €1,054.28
• Finance Ireland 20-year fixed (LTV greater than 70% less than or equal to 80%) @3.45 % = €1,249.52 / over 35 years = €1,149.12
• AIB Variable (LTV greater than 80%) @ 3.15% over 30 years = €1,203.26 / over 35 years = €1,101.16
• BOI Variable (LTV greater than 80%) @ 4.5% over 30 years = €1,418.72 / over 35 years = €1,325.12

Earning €70,000 a year

Purchase price: €335,000

Help-to-buy: €30,000

Deposit on top of help-to-buy: €3,500

First-home scheme: €56,500

Mortgage: €245,000

• Haven Green 4-year fixed @ 2% over 30 years = €905.57 / over 35 years = €811.59
• Haven 10-year fixed @ 2.85% over 30 years = €1,013.22 / over 35 years = €922.49
• Finance Ireland 20-year fixed (LTV greater than 70% less than or equal to 80%) @3.15 % = €1,052.86 / over 35 years = €963.51
• AIB Variable (LTV greater than 80%) @ 2.95% over 30 years = €1,026.33 / over 35 years = €936.06
• BOI Variable (LTV greater than 80%) @ 4.2% over 30 years = €1,198.09 / over 35 years = €1,114.38