25 Jul First Home Scheme (FHS) for first time buyers
The First Home Scheme was launched, in July 2022 in response to buyers who are paying high rents but would prefer to be homeowners. Many buyers are locked out of the property market as the macro-prudential rules require them to put up a 10% cash deposit while also limiting their total mortgage borrowings to 3.5 times salary. Saving a 10% deposit while paying very high rent can be very challenging.
The Help to Buy Scheme goes some way to alleviating the deposit conundrum by offering buyers up to 10% of the value of a property back in a tax rebate up to a maximum of €30,000. So a purchaser buying a new-build property for €300,000 can fund the 10% deposit through a tax rebate, assuming they have paid this amount in tax. This scheme is currently available to 31st December 2022.
If after multiplying their salary (or joint salaries for a couple) by 3.5 they still can’t afford a property, the renter is stuck. This is where the First Home Affordable Purchase Shared Equity Scheme comes in. In such instances, the Government will make up the shortfall, up to a maximum of 30% of the total price of the property in an equity loan (20% if the purchaser avails of the Help to Buy).
What is the FHS?
The FHS will be available to first-time buyers seeking to purchase a newly-built home in a private development anywhere in the Republic of Ireland. This scheme, jointly supported by the State and participating retail banks (PTSB, AIB (including Haven and EBS) and Bank of Ireland), aims to bridge the gap for eligible purchasers between their deposit and mortgage, and the price of the new home within price ceilings established across the country. Through the scheme, the support provided will take the form of a percentage equity stake (share of the ownership) in the home equal to the difference between the price of your new home and your deposit and mortgage, for example:-
- Property Price €250,000
- Deposit €25,000 (10% of Property Price)
- Mortgage €175,000 (3.5 times assumed income of €50,000)
- Percentage Equity Stake 20% (€50,000)
It should be noted that location-based price ceilings will apply to both houses and apartments and you can view the property price ceilings on page 9 of the FHS Guide via the following link:- https://www.firsthomescheme.ie/media/4nda0lnn/0827-first-homes-brochure_r14.pdf
It is expected that the FHS will be available to new home buyers until 2025.
Who can avail of the Scheme?
The scheme is available to:-
- All first-time buyers of new build properties
- People who have previously purchased a property with a partner, but that relationship has ended and no beneficial interest is retained in the property
- Those who have sold or divested of a previously owned property as part of a bankruptcy/personal insolvency arrangement
What other criteria apply?
- Some mortgage lenders will offer you a mortgage of more than 3.5 times your income, i.e. an exemption. You cannot avail of an exemption and the FHS
- You must have a minimum deposit of 10% of the purchase price
- You must have a mortgage approval from a lender that is participating in the FHS
- You must borrow the maximum amount a lender is willing to give you – you cannot use the scheme to top up your mortgage with monies you would have been able to borrow.
Does the Scheme apply to Second Hand Properties?
Unfortunately not, only new-build properties are eligible.
Can future property price changes affect a customer’s Equity Share?
Yes – it is important to remember that the Government is providing an equity stake in your home, and so the amount you owe will fall or rise depending on the price of your home. If the government provides 20% of the property purchase value, at a time in the future when the applicant redeems his share, 20% of the market value at the time will accrue to the government.
What Interest Rate does the Scheme offer?
- No charges or fees will apply for the first 5 years (in effect a free 5-year loan)
- An annual service charge will apply from year 6 onwards (to cover the maintenance of the scheme)
- The service charge is 1.75% from years 6 to 15 (2.15% from year 16 to 29, 2.85% year 30+)
When do I pay back equity stake?
While you are permitted to redeem this equity stake at any time, you are under no obligation to do so, the stake, however, will be recouped when any of the following events occur:
- If you sell your home (the money will be taken from the sale price).
- If your home is no longer your main home or ‘principle primary residence’, i.e. if you buy a second home, move out and seek to rent out the property.
- If you switch mortgage to a lender which doesn’t participate in the scheme.
- When you die (the money will be taken from your estate). For joint applicants, the money is only repayable upon the second death.
Can you give me an example?
- You are earning €50,000 and want to purchase a home costing €250,000.
- You have the minimum 10% deposit required of €25,000
- Under Central Banks mortgage lending rules you can only borrow up to 3.5 times your income, or in this case €175,000
- Gap €50,000
- Under the FHS the Government will bridge this gap by giving you €50,000 (or 20% of the property price) in return for a stake in your home.
- You can repay or “buy-out” the Government’s stake in your home at any time if you wish, but you under no obligation to.
The Application Process
- Once you have Mortgage Approval in Principle (AIP) from a participating lender you can register and apply for the FHS through the customer portal using the following link – https://application.firsthomescheme.ie/main
- Submit your AIP, Photo ID and Proof of Address
- Your application will be reviewed and if approved you will receive an Eligibility Certificate which provides you with the maximum equity you qualify for
- Provide Eligibility Certificate to your Mortgage Provider
- If mortgage approved upload your Full Loan Offer onto the customer portal
- If your FHS application is approved you will receive a Customer Contract for the equity facility
Conclusion
With the current state of the Irish housing market and the increasing reality for young people that they may never be able to afford a home of their own the Governments’ announcement on the FHS is welcome news. The Scheme forms part of the Government’s Housing for All strategy and aims to bridge the affordability gap between what first-time buyers can afford and the price of a new home.
Any attempt to tackle the current housing crisis is welcome, and initial reaction suggests that this could be a vehicle for change and provide those who saw no hope of owning their own property with an opportunity to get onto the property ladder. Minister for Housing Darragh O’Brien has described the Scheme as “the most significant intervention in housing in a generation”.
While the Help to Buy Scheme remains until at least 31st December 2022, and those applicants who may qualify for both schemes will be limited to a combined 30% support, it is expected that the Help To Buy Scheme may be phased out, which is a pity, as this support came in the form of tax refund rather than a loan from the state. We will continue to monitor this space, it could be a game changer for those struggling to get on the home property ladder today.
For more information, please visit the FHS website www.firsthomescheme.ie