A recent report states some 263 home buyers in Dublin have applied for the Government’s new home-loan scheme, looking to avoid Central Bank loan restrictions and lock in to low-cost interest rates.
The high rate of initial interest in the scheme, which is run on a countrywide basis, means that the €200 million budget, expected to cover about 1,000 loans, may run out before the year end.
Launched on February 1st, the Rebuilding Ireland Home Loan scheme allows first-time buyers to borrow up to 90 per cent of a property’s value from their local authority at interest rates of as low as 2-2.25 per cent, fixed for the term of the mortgage.
The loan scheme is part of the Government’s three-pronged approach to make homes more affordable, and also includes rental and purchase schemes. Crucially, it allows first-time buyers to circumvent the Central Bank’s tricky income multiple rules, which restrict people to borrowing 3.5 times their combined income. When launched, the fund was expected to fund about 1,000 house purchases this year, at an average loan of €200,000.
However, three Dublin councils say that they already have received 263 applications. If all of these are approved, it would mean that the funds available for the scheme would shrink substantially.
Fingal County Council, which covers areas on the north side of Dublin such as Swords, Blanchardstown and Malahide, said it has received 151 applications to date; Dublin City Council has received 97 eligible applications; and Dún Laoghaire-Rathdown County Council, which covers areas including Sandyford, Dún Laoghaire and Blackrock, received 25. Nine of these applications were subsequently withdrawn, Dún Laoghaire-Rathdown said, as the applicants opted instead to apply to a different local authority.
Already, Dublin City Council has approved 21 applications, at an average loan value of €227,850, indicating a typical purchase price of €253,166 (based on 90 per cent loan), while Dún Laoghaire-Rathdown says the average size of the loan sought by its applicants is about €243,921, indicating a typical purchase price of €271,023.Applicants to the scheme are bound by maximum purchase prices, of €320,000 in Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow, and €250,000 in the rest of the country.
Qualify for scheme
The home-loan scheme is aimed at first-time buyers with low and middle incomes, with annual salaries of up to €75,000 for a couple, and €50,000 for a single buyer.
Applicants must offer proof that they were either turned down for a mortgage, or were offered “insufficient” finance, by two lenders. A key attraction of the scheme is the low-cost interest rates, starting at just 2 per cent fixed for 25 years, which mean that buyers can borrow more, due to the lower repayment burden and the fact that a stress test doesn’t apply.
However, it’s understood that these introductory rates are unlikely to be renewed, given that interest rates are expected to rise over the coming year, which could push up the cost of funding for local authorities.
Unlike mainstream mortgages, which are bound by a 3.5 times income multiple (excluding exemptions) under Central Bank rules, the home-loan scheme uses a debt servicing ratio to determine eligibility, ie, no more than 35 per cent of a borrower’s income should go towards repaying their mortgage. This means that borrowers can take out loans equivalent to five times their income using the new scheme.
Irish Times 12/04/2018