The Government's attempt to assist first-time buyers in Budget 2017 through its help-to-buy scheme was no doubt well-intentioned, but its usefulness in addressing the key problem is questionable.
Already yesterday’s Finance Bill showed that one of the rules outlined in the Budget speech is being altered - to qualify first-time buyers must now have a mortgage equal to at least 70 per cent of the purchase price of the property, down from the previous 80 per cent.
This change was made on the suggestion of the governor of the Central Bank, Philip Lane. This is somewhat ironic, given that the whole apparatus being put together in the help-to-buy scheme is designed in part to get around the prudential lending rules which the Central Bank put in place. And there is talk of more change to come, with political pressure to reduce the €600,000 maximum limit for qualifying purchases.
The key problem in the housing market is lack of supply. The Government is also trying to address this, but it will take time. The concern is that implementing the help-to-buy scheme in advance of any real supply boost will only act to push up prices. By restricting the scheme to new homes, the Government argues that extra supply will be encouraged. The problem, however, is that this will take time to come on stream.
The political risk for the Government now is that the rules for the new help-to-buy scheme are drawn so tightly that the majority of buyers will be excluded, even if enough cash is released to put some upward pressures on prices. It is particularly difficult to design such a scheme to be fair to different classes of buyers in different parts of the country.
Governments always feel obliged to address problems, particularly ones as sensitive as the difficulties facing young home-buyers, as quickly as possible. There is no doubt that this is a group facing significant difficulties, which need to be addressed by policy action.
But the long haul of increasing supply is the key way of doing this. As this happens, there may be a case to adjust the Central Bank rules, or even to look at how the State can assist first-time buyers. But doing so in advance of a rise in supply risks being counter-productive.