It has rarely been a good time to be a first-time buyer in Ireland.
Although the country might not be wallowing in recessionary gloom like times past or making borrowers pay double-digit mortgage interest rates, things do seem particularly daunting for this generation of would-be homeowners.
Property prices have largely bounced back to boom-time levels, while an era of cheap money that spanned more than a decade has come to a brutal end. To compound the issue of higher interest rates, the average age at which people buy their first house has climbed to almost 40 compared with under 30 in the early 2000s, so loans taken out today have to be repaid faster than ever.
The hangover from the Celtic Tiger era has endured, with the collapse of the construction sector 15 years ago and the resulting decline in supply still contributing to a dysfunctional market with too many people looking for too few homes.
In some respects things are only getting worse, with the dream of jangling house keys almost eternally out of reach for many. To buy a modest-sized house, a would-be buyer requires a salary – or combined salary – of more than €100,000, which is beyond the reach of many people in decent, full-time jobs.
In numbers: Home ownership in Ireland
Figures from the Central Statistics Office this week suggest that property prices climbed 4.4 per cent last year. Industry groups estimate that we are likely to see the same again – or slightly higher – this year.
Although a 5 per cent jump in prices seems modest compared with double-digit annual price increases recorded over many years since the early 2000s, this increase will leave many first-time buyers running to stand still.
That 5 per cent increase will see the price of a home costing €300,000 at the start of the year climb to €315,000 by the end of December. That means a person saving to get a toehold on the property ladder will need to save more than €1,250 more each month between now and then just to be in the same financial position as they are right now – or else borrow a bigger mortgage.
And, of course, many of those who dream of owning a home will also have to pay rent and cover the costs of groceries and all the other day-to-day necessities that are still significantly higher than they were three years ago.
The Government is keenly aware that housing remains one of the biggest – if not the biggest – threat to its re-election prospects and it has taken some steps to help younger people up on the property ladder, which means there is at least some hope on the housing landscape, although the schemes are not without their problems.
Help to Buy
The Help to Buy scheme was launched more than eight years ago as a short-term measure but is likely to be with us for some time yet. It is – by some distance – the most popular support for first-time buyers.
About 30,000 people availed of the scheme last year, a threefold increase in five years with the average claim also climbing sharply, from less than €15,000 in 2018 to about €27,000 last year, at a cost to the State of more than €100 million.
Whatever about the cost, the scheme is relatively simple and allows people to secure a refund of income tax and deposit income tax, or Dirt, for the four years before a loan application is made. This is only possible if they take out a mortgage to cover at least 70 per cent of the purchase value of the property or the valuation by the lender if it is a self-build.
It is not without its critics, with a review of the scheme commissioned by the Department of Finance suggesting it was “poorly targeted with respect to incomes, location, house prices and other socioeconomic factors”. The review also noted that the scheme appeared to support those who could have bought a home without the rebate.
About 20 per cent of those who availed of the scheme last year had deposits of about a third, or three times the required 10 per cent deposit. These large deposits suggest the buyers might have managed without the State support. Only 31 per cent had a loan-to-value ratio of 90 per cent or more in the purchase.
First Home Scheme
The relatively new support on the block is the First Home Scheme, a shared equity scheme in which the Government and participating banks pay up to 30 per cent of the cost of the home to fill the gap between a first-time buyer’s mortgage and the cost of their home.
It is available nationwide for first-time buyers as well as so-called “fresh start” applicants who may have owned and relinquished a share in a property following the breakdown of a relationship who are buying or building a new home. An alternate version is available to people who want to buy the home they are renting because their landlord is selling the property.
Qualifying properties must cost less than the price limit for the local authority in which the home is located, with the limits varying depending on the area, with those limits based on the average price for a particular area. Buyers must borrow the maximum amount available, which is four times gross annual income.
If a first-time buyer has an income of €70,000, the maximum they can borrow is four times their income, which would be €280,000. If that buyer wants to purchase a property for €380,000, it is clearly beyond them. If they have a deposit of €38,000 – the necessary 10 per cent for a first-time buyer – then the maximum they can stretch their budget between income lending limits and the deposit will be €318,000. In this case, the so-called “affordability gap” is €62,000. Under the new scheme the buyer could move into that home, with the State taking a 16 per cent stake in it, covering the gap of €62,000 against the €380,000 value of the property.
Anyone who sells will have to share any gains as a result of property price increases with the State. So, if a house cost €250,000 when it was bought and the State took a 20 per cent stake, the person will have been given €50,000 as part of the scheme. If the house is worth €300,000 when sold, the stake to be repaid will be €60,000.
A deposit of 10 per cent is required, although money from the Help to Buy scheme can be used for that.
It is growing in popularity, with more than 3,000 homes approved last year and with more than 5,000 new expressions of interest submitted in 2023.
The two policies are clearly helping people buy, with first-time buyers availing of the Government’s two schemes accounting for 61 per cent – or more than 30,000 – of the mortgage approvals secured last year. Although first-time buyers clearly need support, concerns persist that the measures are skewing the entire market. The latest official figures suggest the price of new homes – the ones most sought after by first-time buyers – climbed almost 10 per cent on an annual basis in the final quarter of last year.
And such price increases help nobody.
Ultimately, the answer to the crisis is not more money but more houses.
New home supply is far less than it should be, while turnover in the second-hand market is well below what a normal market would show.
In a properly functioning market, 4-5 per cent of the stock changes hands each year; in Ireland it is no more than 3 per cent – and less in some areas.
Until that changes, many in the locked-out generation won’t be getting the keys to anything they can call their own.
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