It’s a conundrum of the current market. Putative homebuyers are qualifying for mortgages based on their incomes. But, given high rents, they are struggling to save enough for a deposit, while rising house prices mean that they can’t find a home that qualifies for Government incentives.
“Supply of affordable new-build homes is the greatest challenge for our mortgage-approved clients,” says Martina Hennessy, chief executive of Doddl.ie, pointing to a “very active” mortgage market in the first six months of the year, with approvals and completions reaching a record high.
But many of these would-be buyers simply can’t find a home to buy.
“With more mortgage-approved would-be home buyers, and no real increase in supply, the market is very frustrating for many,” says Hennessy.
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But for those who do manage to find their home, how best can they fund it? And for those who need to “close the gap” on their purchase, what Government schemes might help?
Government help
Against a background of ever-increasing house prices, incentives such as Help to Buy and First Home have become more important than ever.
“The vast majority of first-time buyers require those supports to get on the ladder,” says Margaret Barrett, managing director of Mortgage Navigators, noting that with rents so high, unless buyers are getting family support, they need to access Government supports.
“It’s a perfect storm – rental properties are at an all-time low, and rents at an all-time high. Customers are really caught trying to secure that 10 per cent deposit,” says Barrett.
Step forward Help to Buy. Currently due to run until end-2029, Help to Buy offers a tax rebate of up to €30,000, which can be used to fund a deposit to help purchase a new home.
First introduced in mid-2016, it’s now more popular than ever. In the first half of this year, for example, there were about 22,000 applications, up by more than 40 per cent year-on-year.
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To qualify, you must be a first-time buyer; it’s only available on new homes valued at up to €500,000 (this is something that might increase on budget day); and if you’ve been working abroad in recent years, you may not have paid enough tax for a full rebate.
The challenge is finding a home beneath the ceiling of €500,000 – something which has become more difficult in recent years given continued price rises. As a recent search on myhome.ie showed, just five new-home developments in Dublin currently have properties available under this limit.
“The price ceiling can mean that many are ineligible for the scheme,” says Hennessy.
Barrett agrees. “We’re seeing customers really struggling with the ceiling thresholds on Help to Buy/First Home,” she says, citing a recent example of a customer looking to buy a three-bed semi-d in Cork City. But, at €495,000, it was beyond the scope of First Home, which has a house price ceiling of €475,000 in the city.
Barrett is calling for a revamp of Help to Buy, and for it to be available for all homes – second-hand or otherwise. She also thinks the price ceiling needs to be increased – to about €550,000-€600,000 – to catch up with inflation, with the deposit part correspondingly increased to about €50,000-€55,000.
“The market has outpaced it,” she says.
However, there may be a change on the way in next month’s budget, with expectations that the price threshold might increase- although this is likely to also bring fears of further inflation.
You can also use your up-to-€30,000 tax rebate from Help to Buy in conjunction with the First Home scheme. This is aimed at closing the gap between what you might be able to afford and what you want to pay, through the Government taking a stake in your property, of up to 30 per cent (or 20 per cent if you’re also getting Help to Buy).
A price ceiling also applies to this scheme, of as much as €500,000 in Dublin and Cork, falling to €350,000 in counties such as Carlow, Longford and Tipperary. These were increased in 16 counties by €25,000 in July of this year.
New buyers are availing of it; latest figures show that more than 3,300 buyers across 25 counties have bought through First Home, while almost 7,000 have been approved for it.
[ Irish house price inflation at 7.8% in June as median cost hits €370,000Opens in new window ]
The latest quarterly report shows that the average support received by each buyer was €66,324 – or 17 per cent of an average purchase price of €385,857.
It is not for all, however, and remember that the equity stake will have to be repaid should you choose to move, and if you don’t, you will start paying a fee on it from year six.
There is also a scheme in place if you have been turned down by a lender for a mortgage. The Local Authority Home Loan is a Government-backed mortgage offering a fixed rate of between 4 and 4.05 per cent over 25 to 30 years. On the downside, this scheme also requires you to take out specific local authority mortgage protection insurance, which does add to borrowing costs.
Shop around for a mortgage
Mortgage rates are falling – the average interest rate on new mortgages was 3.6 per cent in June, according to Central Bank figures, down from more than 4 per cent a year earlier.
With new homes, a green rate may make sense, as this is typically the cheapest rate on offer from your lender, and is for homes with a Ber rating of A1 to B3.
“Green rates start from 3 per cent so are some of the lowest rates in the market,” says Hennessy.
For example, AIB has a green rate of 3.2 per cent, fixed for three years. On a home bought for €480,000, with a mortgage term of 30 years, this will mean monthly repayments of €1,868.26.
If you didn’t go for a green rate, however, and faced an interest rate of 3.95 per cent, this would mean higher monthly repayments of €2,050 – or almost €2,200 extra a year.
But don’t just count on a green rate – Avant has just introduced its flex mortgage product, which has a rate of as low as 2.89 per cent. And the Ber doesn’t matter.
Sometimes it’s not just about the rate; it’s about borrowing as much as you can.
As Barrett notes, while you might pay more in terms of the rate with the likes of Nua Money, you might get to borrow more also, as they may do a more generous credit assessment on variable pay such as bonuses, and they might also take some social welfare payments/maintenance payments into consideration when calculating how much you can borrow.
Also a possibility is a cashback mortgage. This offers either a fixed sum (Haven, for example, offers €5,000) or a percentage of the value of your loan back (up to 3 per cent with Bank of Ireland, for example, or 1 per cent with Avant).
While attractive, as it will give you a much-needed cash payment to help furnish your home etc, it will probably end up costing you more over the long term, as such offers typically don’t come with the lowest interest rates.
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As Hennessy says, “cashback is a marketing incentive”, as you typically won’t get the lowest market rates with it.
“So it is worthwhile assessing the cost versus benefit of a cashback offer,” she says.
However, for some borrowers, cashback will be the right option.
“They have their place,” says Barrett of the products, adding that it may not make sense for a buyer to lock into a low green rate but then have to go out and borrow at short-term lending rates to furnish the home.
“The cost of cashback is not equivalent to borrowing at 8 per cent,” she says.
Remember, if you do lock into a higher rate, for whatever reason, you should look to switch to a lower rate once the fixed term ends.
Fixed or variable
With flexibility on over-paying your mortgage, and the lowest rates on the market, fixed rates are still very much in favour.
According to Hennessy, fixed rates are still favoured by the majority of mortgage holders.
“First-time buyers in particular value the set repayments a fixed-rate product offers,” she says.
