Government-backed mortgages to help people buy first home

Government-backed mortgages will have lower interest rates

The Government is to provide mortgages for first-time buyers with lower interest rates than the main commercial banks.

Families and individuals who earn too much to qualify for social housing but also struggle to obtain traditional mortgages will qualify for the scheme being announced today.

The Government-backed mortgages, which can be used to buy both new and second-hand proprieties or to build a home, are among a number of measures in an affordable homes package.

From the beginning of next month, those looking to get on the property ladder will be able to apply for the mortgages which have the option of a fixed rate of 2% to 2.25% interest for 25 to 30 years. Commercial banks are currently charging upwards of 3%.

To prevent the spike in demand driving up house prices, the Government has capped the price of houses that can be purchased at €320,000 in major urban areas such as Dublin, Cork, and Galway. That figure has been reduced to €250,000 in the rest of the country.

The average price of a new house was €240,000 in 2017, according to In Dublin, the average price of a house was €360,000; €260,000 in Cork, and €273,000 in Galway.

The three main elements of today’s package are:

  • The Rebuilding Ireland Home Loan;
  • Affordable Purchase Scheme;
  • Affordable Rental Scheme.

The announcements come as Housing Minister Eoghan Murphy holds a second housing summit with the 21 local authorities today to ensure they meet the social housing construction target of 3,800 homes this year.

The minister is to publish the building targets for each local authority after today’s summit.

Mr Murphy has secured €200m for the initial phase of the Rebuilding Ireland Home Loan, but it is intended to raise additional funds when this is exhausted.

To apply for the new mortgages, which will be available through local authorities, a single person’s annual gross income cannot exceed €50,000, while a couple cannot earn more than €75,000.

The scheme will take account of Central Bank rules, meaning applicants will be able to borrow up to 90% of the market value of the property.

This means for example, that a couple earning €75,000 and living in Cork City could afford to buy a house worth €320,000, provided they had €32,000 as a deposit. They could then borrow €288,000 from their local authority and the monthly repayments would be €1,221.

The Affordable Purchase Scheme will see homes built on state land and sold at reasonable rates.

The same income limits as under the Rebuilding Ireland Home Loan will apply for applicants to be eligible to purchase homes.

While building the homes on public land will bring down the cost, the price of homes will also be discounted and in exchange the State will retain an equity share in the house.

For example, a home that costs €250,000 may be made available to purchase at €200,000. The equity share can be paid off, interest free, by the purchaser at a later date. Or if the owner wants to sell early, the State can take that portion back at the time of sale.

“We are working to increase the ambition of this programme to see more affordable homes from state-owned sites and I have asked local authorities to come back to me with ambitious proposals for an affordable programme on their lands,” said Mr Murphy.

The final measure, which Mr Murphy said will take more time to implement, is an Affordable Rental Scheme. Tenants would pay rent that would cover the cost of building the property, ongoing management and maintenance changes, but minimal profit would be included.

Mr Murphy said the initiative would provide “greater certainty around the rent, regardless of what is happening in the market”.

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