Scheme to help people on lower incomes approves almost €1bn worth of mortgages

Scheme to help people on lower incomes approves almost €1bn worth of mortgages

Just 48% of all loan approvals have been drawn down with 36% having allowed their approval to lapse and a further 16% still outstanding at the end of last year.

A Government scheme to help people on lower incomes purchase a home is “not likely to be having a distortionary effect” on the housing market, a new report has suggested, having approved almost €1bn in mortgage loans over a four-year period.

The Local Authority Home Loan, formerly the Rebuilding Ireland Home Loan, has seen a total of €981.7m worth of mortgages approved against a budget of just €776.3m.

However, just 48% of all loan approvals have been drawn down with 36% having allowed their approval to lapse and a further 16% still outstanding at the end of last year, according to the report prepared by the Irish Government Economic and Evaluation Service.

The relatively low take-up of the scheme contrasts with some of the Government’s other initiatives aimed at helping first-time buyers purchase a home, such as the Help to Buy scheme. 

An independent report found earlier this year that Help to Buy has fuelled property inflation as a third of claimants did not need help to raise the 10% deposit required to obtain a mortgage.

First-time buyers

The Local Authority Home Loan is aimed at first-time buyers with a maximum annual gross income of €75,000 (for joint applicants) and at €65,000 for single applicants in Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow and €50,000 in all other counties.

They must provide proof of insufficient mortgage offers of finance from two other financial providers. It offers up to 90% of the home value, up to €320,000 in Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow and €250,000 in the rest of the country.

In Cork city, against a budget allocation of €5.5m, the value of net approvals reached €7.6m in 2021 with an average approval amount of €190,671.

However, the scheme was significantly undersubscribed in Cork County with just €13.7m of mortgages approved against a budget of €21.7m.

In all, just 10,273 applications for the scheme were assessed up to the end of 2021. Of these 5,442 (53%) received approval in principle.

Approval rates

The approval rate varied widely across local authorities, with just 33% of applications in Kerry approved compared to 88% by Dublin City Council. The average approval rate fell from 56% in 2018 and 2019 to 52% in 2021.

The report said that demand for the scheme “has been high”, with an average of 1,500 approvals in principle given each year excluding 2020.

As so many applicants given approval didn’t actually reach the point of drawing down a mortgage, the scheme has been coming in under budget despite being oversubscribed in terms of approvals.

The report said: “Funding of the scheme to date appears to appropriately reflect the need, with drawdowns typically coming in below the annual allocation at year-end.

“Mean mortgage amounts approved and drawn down under the scheme are significantly below median house prices and mean first-time buyer mortgages. This is appropriate for a scheme which is aimed at a relatively lower-income cohort than typical first-time buyers.

The report concludes that a more detailed dataset including the type of homes bought, the social impact of the scheme and the risks the scheme poses would be beneficial.

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