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Homeward Bound: Re/Max outlines new funding for first-time buyers

Faster delivery of new housing developments is becoming more evident in the last year….

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But, for first-time buyers who just can’t afford to buy a home, shiny new houses or apartments in the neighbourhood can be simply frustrating.

The good news is that, since July, the Government’s ‘Housing for all Strategy’ has added a new funding opportunity, designed to bridge the gap for eligible first-time buyers between their deposit, the mortgage they secure, and the price of a new home.

Brian Deely of RE/MAX Property Specialists has the low-down on the new First Home Scheme (FHS), plus the Local Authority Affordable Purchase Scheme, and the Help to Buy Scheme, which has been available for the last six years.

First Home Scheme

The FHS is a partnership of the State and three of the banks; Bank of Ireland, Permanent TSB, and the AIB and its EBS and Haven Mortgages businesses.

Homes eligible are subject to price ceilings for houses and apartments, based on market prices. A Wexford home, for example, has a cap of €300,000, while in Dublin city and large parts of the county, it’s €450,000. 

The scheme is available to eligible first-time buyers (FTBs) buying a new-build ‘principal private residence’ anywhere in the country. This essentially means someone who has not previously bought or built a dwelling in the State to live in, and has not got an interest in any other dwelling or estate.

There are exceptions for non-first-time buyers, including those who bought homes with a spouse or partner, where the relationship ended, and who have no beneficial interest in the previous property. Also, those who have sold or given up a property as part of a personal insolvency or bankruptcy arrangement.

The application process is outlined on www.firsthomescheme.ie, and, to make an application, buyers need Mortgage Approval in Principle (AIP).  Self-builds are currently excluded from the FHS, but this is to be reviewed.

The FHS is basically an equity share, not a loan, and repayments are not required. Scheme users have the option, but not the obligation, to buy out some or all of the equity stake at any time.

If the property is sold, is no longer the person’s principal private residence, or if the owners die or switch mortgage to a non-participating lender, then the equity amount must be repaid. 

Interest is not applicable, but there is a service charge on the equity amount after five years of drawing it down, starting at 1.75%, and rising to 2.85% after 30 years.

FTBs can avail of up to 20% equity support to buy a home, or a maximum of 30%, if the equity stake is not used in conjunction with Help to Buy. They must have a 10% deposit, and by availing of up to 30% from FHS, they reduce their loan-to-value (LTV) with the Bank to 60%. 

Second-time buyers, classed as FTBs for the scheme, must have a 20% deposit under Bank rules.

Affordable Purchase Scheme

The Local Authority Affordable Purchase Scheme helps people on low to moderate incomes buy homes at reduced prices. New homes under this scheme are in areas with the greatest housing need, and where affordability is an issue.

Local Councils have arrangements in place with developers for the sale of newly-built homes under the scheme. They make them available at a reduced price for first-time buyers, whose mortgage and deposit would not otherwise cover the market price.

Eligibility depends on being a first-time buyer, who doesn’t own or have a legal interest in another dwelling, and has a gross total annual household income between €56,000 and €81,000. Residency rights or indefinite leave to remain in the State also apply.

Those with savings above a certain amount may not qualify for this scheme, in which the local authority takes a percentage equity stake (ownership share) in the home, equal to the difference between the open market value of the property and the reduced price paid.

Each local authority will manage its own affordable housing scheme and advertise when suitable new-build homes are available. Applicants need a mortgage approval in principle letter, which is generally subject to having raised a 10% deposit.

Again, the Help to Buy Scheme operated by the Revenue Commissioners can be used towards the deposit for these affordable homes, although, if using HTB, the total equity share cannot exceed 20% of the market value of the property.

Help to Buy

Hopes are high that the Help to Buy housing scheme, due to close at year-end, will be extended in September’s Budget 2023. 

This scheme allows first-time buyers claim tax-relief for the previous four years.  It is primarily designed to help first-time buyers to fund the deposit to buy or to self-build a new house or apartment, as their home.

It only applies to properties costing €500,000 or less to buy, or with a completion value under €500,000. There must be a 70% loan-to-value ratio; in other words, applicants must have a mortgage of at least 70% of the cost price of their home, whether a new-build or self-build.

Income tax and Deposit Interest Retention Tax (DIRT) paid in Ireland over the previous four tax years is refundable to approved applicants. Relief on PRSI or USC payments cannot be claimed.

The relief that can be claimed is the lowest amount of either €30,000, or 10% of the property purchase price or completion value, or the total income tax and DIRT paid in the previous 4 years.

Individuals will not qualify if they have previously bought or built a property, either individually or jointly with anyone else, even if they are now separated or divorced.  Properties must be the first-time buyer’s home, not an investment property.  And, new owners must live in the property for 5 years from the date it is habitable.

Realistically, anyone panning a HTB application to Revenue now, should be on the verge of signing a contract for a new house, or drawing down a self-build mortgage, in order to meet the year-end timelines.

If the tax-refund scheme is discontinued, in favour of the newer shared equity options, the real estate sector continues to advise first-time buyers on funding supports available, to determine the best routes onto the property ladder for them, and to promote the continued delivery of much-needed affordable housing.

Brian Deely of RE/MAX Property Specialists can be contacted on 051 843684  in relation to the local housing market and funding schemes.

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