Unrelenting increases in rent have made it cheaper to pay a mortgage than to rent but those entering the property market for the first time can be forgiven for being hesitant – given the scars still visible on some of the negative equity generation ahead of them.
But for those who have decided to take the plunge and are hunting for their first home, what incentives are on offer?
The Help-To-Buy Scheme is the primary form of State-led assistance available. It was due to expire at the end of this year but has been retained for another two years in October's budget by Minister for Finance Paschal Donohoe, despite being criticised by the Oireachtas Parliamentary Budget Office last month. The office said it "likely benefited some purchasers who did not need the incentive".
First-time buyers can claim relief of income tax paid over the previous three years of up to 5 per cent of the total value of the property – up to a maximum of €20,000 – when they purchase a newly built property or build their own home.
Properties above the value of €500,000 don't qualify though that is hardly an inhibitor for most first-time buyers who would not be able to stretch to those sort of valuations.
There had been talk of reducing this price ceiling. It had already come down from €600,000 in 2017. In the event, the Minister made no move on that.
Successful applications receive the payment through a rebate on income tax – but not universal social charge (USC) or PRSI – and deposit interest retention tax (Dirt).
There are a few caveats for buyers. The scheme cannot be used for investment properties and only applies if the buyer is taking a mortgage of at least 70 per cent of the purchase price – or, for self-builds, the property valuation on completion. If you are buying a home with someone, or a group, everyone involved must be a first-time buyer.
Applicants must also prove they are tax compliant and be buying from a developer/contractor who is listed on the approved list available on the Revenue website.
Rebuilding Ireland
Outside Help-to-Buy, aspiring homeowners struggling to get a mortgage can avail of a Rebuilding Ireland Home Loan. This scheme offers mortgages at reduced rates – 2 per cent fixed for up to 25 years and 2.25 per cent for up to 30 years – to first-time buyers who have been refused a mortgage or were offered "insufficient" finance, by at least two lenders.
The scheme covers 90 per cent of the cost of the home, meaning that, as with Help-to-Buy, buyers only need to raise a 10 per cent deposit. The amounts on offer vary depending on where in the State you wish to buy. Those who have their sights set on their first home in counties Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow can borrow up to €288,000, while those in the remaining counties can borrow up to €225,000.
If you are self-building your first home the same criteria applies to the total build cost.
Critics of the Rebuilding Ireland loan scheme argue it doesn’t extend far enough. While the average house price nationally is €257,114, in large areas of Dublin property is unattainable with Rebuilding Ireland alone.
To qualify for a loan under the scheme, you must be in continuous employment for a minimum of two years if you are the primary earner, or one year if you are the secondary earner.
Crucially for borrowers, Help to Buy and Rebuilding Ireland can be used together. This means that a person or couple who wish to buy a home for €320,000 in Cork, for example, will need to have a deposit of €32,000 in order to get maximum Rebuilding Ireland loan of €288,000 but they can receive €16,000 of this in a tax rebate through the Help-to-Buy Scheme.
Affordable Purchase
There is one other scheme due to come on stream for first-time buyers. The Affordable Purchase Scheme is due to be rolled out in the coming months, albeit well after the start of the year that was originally promised.
The Department of Housing told The Irish Times that “final regulations are still to be put in place over the coming months regarding eligibility and other matters”.
The plan will be targeted at workers who cannot secure a mortgage but who don’t qualify for social housing, with new homes being built on local authority lands. The scheme will be restricted to single applicants earning less than €50,000 per annum and couples with a combined annual income of €75,000.
Once built, the homes will be sold to qualifying buyers at a discount of up to 40 per cent on market rates. The local authority maintains a fully repayable equity share in the properties equivalent to the percentage discount given.
As the eligibility criteria are still being finalised, the Department of Housing has said it cannot say if it can be used in conjunction with the Help-to-Buy scheme.
Value
Aside from the incentives on offer, a central question for first-time buyers is: does the current housing market offer good value for money and is it the right time to buy, or would it pay to hold off?
The most recent MyHome.ie housing report shows that the housing market is cooling off, with the median house price nationally dropping to €269,000, a decrease of 2.8 per cent compared with the same time last year.
House prices in the capital actually lost value according to the report, with prices down by 6.3 per cent in Dún Laoghaire Rathdown and by 1 per cent in Dublin city. Prices still rose however by 1.6 per cent in Fingal and 3 per cent in South Dublin, which remains the most expensive area in the State to buy.
While the median price of a four-bedroom detached house in south Dublin remained flat at €775,000, prices are on the rise in cheaper parts of the city. For example, prices for two-bedroom apartments in Dublin North grew by 6 per cent to €250,000 and by 5.5 per cent in Dublin West where the median asking prices is €210,000.
The slowing effect has so far been contained to Dublin and Limerick city, which saw prices slide by 2.49 per cent.
Though prices are slowing, activity in the capital is on the increase, with a 2.6 per cent growth in the number of transactions over the first eight months of 2019. Mortgage lending is also up, by 9 per cent to €3.4 billion, indicating that despite the threats posed by Brexit the housing market is still “buoyant”.
Prospective buyers will be hoping that the downward price trend will spread beyond the capital. In some areas it is showing signs that it will with six counties – Kerry, Waterford, Carlow, Longford, Cavan and Monaghan recording static prices for three bed semi-detached properties compared to the same time last year.
Despite being exposed to the effects of Brexit Donegal saw the biggest growth of any county in the country, rising by 15 per cent to €149,000.
So is now the right time to buy if you are a first-time buyer?
There is still a lot of uncertainty in the housing market, the main driver being the seemingly perpetual Brexit saga. A no-deal Brexit would have such significant impact on the Irish economy and the property market would be unlikely to escape the fallout.
Border counties, which stand to be most affected by the outcome of Brexit, are already feeling the effects. Prices in every county along the Border are declining.
Economist Jim Power believes Brexit-related uncertainty is "definitely impacting on buyer psychology". On top of longer-term issues of supply and affordability, it has led the housing market to its current "standstill".
Housing supply is gradually increasing, with 22,000 new homes expected to have been built by the end of 2019, up from 18,500 last year and 14,500 in 2017. While the “magical figure” in terms of supply is 35,000 houses a year, Mr Power believes the increasing supply “is having some impact” on prices.
Recent comments from stockbroker Goodbody that builders are unlikely to deliver the number of houses expected next year will clearly affect this position.
Despite the increased supply, the cost of buying a newly built house is increasing. In the first half of 2019, the average sale price of a newly built home was €339,500. That compares to €330,000 12 months previously.
Affordability remains an insurmountable hurdle for many people trying to buy, particularly in Dublin.
“If you combine the current level of house prices or at least the level that has been attained in the last 12 months with the Central Bank’s mortgage lending regulations, quite simply a lot of house prices are simply unaffordable for most people,” Mr Power said.
Despite calls from Taoiseach Leo Varadkar and most recently from the newly-appointed chief executive of AIB, Colin Hunt, for the Central Bank to relax its mortgage lending rules Mr Power doesn't believe it will happen anytime soon.
Under the current rules, introduced in 2015, first-time buyers would need a deposit of €58,000 if they wanted to buy a home valued at €400,000. The rules stipulate that a deposit of 10 per cent is required for the first €220,000 borrowed with 20 per cent required on borrowings after that. And borrowers are restricted to loans of no more than 3.5 times their gross annual income.
There is scope for a certain number of exemptions but it is best not to rely on that.
The purpose of the rules is to protect us from ourselves – to ensure homebuyers and lenders don’t return to the disastrous credit bubble conditions that led to such misery in 2008 and beyond when the market crashed.
Ultimately, a home is a long-term purchase. Prices may rise, or fall, over that time. Whether you choose to take the plunge now depends on your own circumstances and whether the sums stack up under the Central Bank, with or without the assistance of one or other of the incentive schemes available.
