This week we look at the prickly subject of buying a home. It’s the biggest financial challenge most of us will ever face and a market from which a growing number of people feel locked out.
For most of us, we just tot up the figures – how much have we been able to save towards a deposit, what the permitted earnings multiple of 3.5 or, for a first-timer, four allows us borrow, will a bank actually give us that money and see what, if anything, that will allow us to bid for.
It can be a soul-destroying process, chasing endless dreams that always seem to drift out of reach.
But there are some schemes out there that may give us that little boost we need to get across the line, some of which can be used alongside one another. And, despite what some people think, they are not restricted only to people on very low incomes.
So let’s look at what’s available.
1. Help to Buy: best known of the buyer support schemes is probably Help to Buy which first became available in January 2017, backdated to the previous July, as the government of the day sought to incentivise developers to build new homes for the first-time buyer market.
Since then, the deadline for the incentive has been repeatedly extended and it has also been made more generous.
It allows a buyer or buyers to claim back up to 10 per cent of the value of the property or €30,000 – whichever is the lower figure – from tax that they have paid over the previous four years.
Only income tax and, for what it is worth, Deposit Interest Retention Tax (Dirt) count; you cannot draw against USC or PRSI payments. So if you have not paid much tax in the previous four years, the benefit available to you will clearly be lower. Clearly, you do need to be tax compliant, as does the builder.
Those caps are across all buyers, not individually.
You must be first-time buyers, the property must be your family home, not an investment property and it must be newly built – either by a developer or self-built by the applicants. You cannot use it against the purchase of second-hand homes.
The property must be valued at €500,000 or less and you must have taken out a mortgage which must amount to at least 70 per cent of the purchase price or value of the home. After Budget 2024, you can qualify if your mortgage plus, if necessary, any affordable dwelling contribution available to you under a couple of the other schemes we will talk about hits that 70 per cent threshold.
Finally, you must live in it for five years or risk a clawback of the relief.
There has been pressure to allow the scheme widen to include second-hand homes, not least because of the price premium on new homes, but that has received a deaf ear, not least as a big point of the scheme is to encourage developers to build.
2. Local Authority Home Loan: Depending on your income, the price of the property you are looking to buy and a few other factors you may be able to secure a local authority home loan.
You do need to be aged between 18 and 70 and be a first-time buyer or what is now known as a “fresh start” purchaser – someone who has come through personal insolvency or bankruptcy, or else is divorced or separated and has no financial interest in the family home.
The income limits are more generous than you might expect – up to €70,000 gross income for a single person, or €85,000 for joint applicants.
You can qualify for a loan of up to 90 per cent of the value of the property as long as you have a 10 per cent deposit (including Help to Buy if relevant) and a clean credit record as long as the repayments will be less than one-third of your monthly household income.
You’ll also need to show that at least two lenders have refused to give you a big enough mortgage and that you have been working continuously for at least two years.
The upper limit on the price of the property depends on where you are in the State. It can be as high as €360,000 in Dublin, Meath and Wicklow. This dips to €330,000 in Cork, Galway, Meath and Louth; €300,000 in a number of other counties including Limerick and Waterford; and €275,000 in the remaining 13 counties.
The loans currently charge interest at 4 per cent fixed over the life of a loan for up to 25 years and 4.05 per cent for loans over between 25 and 30 years.
As with all these schemes, it needs to be your main family home.
3. First Home Scheme: This is a shared equity scheme. Basically, the State will contribute up to 30 per cent of the cost of your new home in return for taking a stake in the property.
The usual rules apply. You must be a first-time or fresh start purchaser over the age of 18 and the property must be your family home and it must be newly built.
A variant of the scheme – called the Tenant Home Purchase Scheme – applies for tenants looking to purchase the property they are currently renting where the landlord is selling. The one big difference here is that it allows you purchase a second-hand property.
There are also price limits which as before, vary between counties, though they are not the same as under the local authority home loan scheme and can vary even within counties depending on whether you are buying an apartment or a house.
At the upper end, in Dublin, the property can be valued at up to €500,000 for an apartment or €475,000 for a house. That figures falls on a sliding scale to as low as €325,000 for properties in 14 of the less urban counties.
In relation to your contribution, you will be expected to have a 10 per cent deposit and to have borrowed up to your limit with one of Bank of Ireland, Permanent TSB or AIB – including EBS and Haven Mortgages.
If you have been given an exemption to borrow above your limit, you will be excluded from eligibility for this scheme; the same applies if you use a borrower other than those listed.
You can access anything from 2.5 per cent of the value of the property (or €10,000 whichever is the higher) up to 30 per cent. That upper limit comes back to 20 per cent where you are also using Help to Buy.
If you want, and finances down the line allow, you can buy back the State’s equity in your home in tranches of not less than 5 per cent a time. So you could spread a repurchase over six separate transactions or you could do it all at once. You can make no more than two buy-backs in any one year.
And the price you will be paying will reflect the market value at the time of buyback not the value it would have been back when you bought the home.
If your rent the property, or sell it, you’ll need to repay the State support at that point at market rates. The same applies if you switch lender to a bank not in the scheme.
In the meantime, for as long as the State is still joint owner, you might be paying what they call a “service charge”.
For the first five years, there is no charge. Thereafter, you will be charged 1.75 per cent of the money the State put up – not the updated market value – in each of years six through 15, rising to 2.15 per cent a year from year 16 to year 29, and to 2.85 per cent a year beyond that.
4. Local Authority Affordable Purchase Scheme: This is more constrained and is focused on allowing people with moderate incomes to buy in areas of high housing need at reduced prices. The local authority takes a stake of between 5 and 40 per cent in the home equal to the discount you pay on the advertised price
To qualify, your income multiplied by 3.5 must be less than 85.5 per cent of the value of the affordable home (the prices of which will have been determined already by the local council) or you can show that you cannot secure a mortgage for 85.5 per cent of the price.
Apart from setting the price, the council can set criteria for the allocation of the homes – for instance by family size or local residency.
You will also be subject to a means test looking at your income, assets and any savings. And, like most of the schemes, you must be a first-time or fresh start purchaser.
Like the First Homes Scheme, you can buy the council out at any time, either in stages or all at once. Again it will be at the market rate for the council share, not the amount they originally put up and the minimum you can buy back in any one go is €10,000.
You are obliged to buy them out after 40 years or if you sell the home. If you die, the debt will be a preferential charge on your estate.
With so many people struggling to make the sums work, it makes sense for aspiring buyers and their families to investigate whether one or more of these scheme will give you that additional firepower needed to close the deal.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.
