Impact (if any) of affordable state mortgages on the new homes market

Since February 1st, local authorities across the country are offering Rebuilding Ireland home loans, a Government backed initiative that aims to provide low-cost mortgages to purchasers who have difficulty in securing finance from traditional mortgage lenders. The Affordable Mortgage Scheme is aimed at individuals and couples who earn too much to qualify for social housing, yet are struggling to attain traditional or main bank home loans. Differing to the help-to-buy initiative, which is limited to newly-built homes, the new mortgage scheme can be used to purchase a new or second-hand home or, significantly, to finance the construction of a self-build. We know that one-off  house building contractors around the country have been operating to untenably tight margins over the past few years, perhaps this will improve things for them.

The Government has put aside €200 million for the loan structure this year, but it may be stretched into 2019 and beyond, if it proves successful. Given the rising end-price of properties, the fund is only expected to support about 1,000 house purchases this year, at an average loan of €200,000. The scheme will offer lower interest rates to potential applicants than most Irish banks. First-time buyers will be able to get a loan worth up to €288,000 with an interest rate of 2.25 per cent for 30 years or 2 per cent for 25 years, depending on circumstances. To qualify for the new scheme, a single person’s gross income cannot surpass €50,000. As for a couple hoping to get onto the property ladder, they cannot earn more than €75,000 combined. When applying, people must also meet certain lending criteria to prove that they can afford the loan repayments.They must also demonstrate proof of having received two rejections or inadequate offers from other lending institutions.The maximum loan amount is determined by where the property is located.

As much as these schemes offer alternatives to traditional mortgages, there is the question of whether they will actually impact the new homes market in Dublin or surrounding counties, given the low threshold.  Our own research here at Lotus Investment Group has revealed that the pipeline of new homes -particularly houses – expected to be delivered in the Greater Dublin Area in 2018 and 2019 are outside the ‘affordable housing’ price range, which is €260,000 to €320,000.

The scheme might well benefit development in regional cities like Limerick and Waterford, however, it is unlikely to benefit development within the capital, Cork or even Galway City. We know, and the State accepts, that population growth demands an absolute minimum of 25,000 new homes per year over the next two years, and no fewer than 35,000 per year for the next seven years (other figures suggest double that volume is required). Also, many of you might have listened to our Housing Minister speaking on RTE Radio 1 this week about his plan to speed up the delivery of housing, as homelessness figures look set to top 10,000 this month. There seems to be a genuine disconnect between established demand and the political will to satisfy that demand – or to support the industry that can.  It is certainly true that the construction sector is gearing up, however, delivery is consistently slower than expected, and slower than needed. What is the answer?

Ian Lawlor
086 3625482

Director / Business Development
Lotus Investment Group