The Help to Buy scheme which came into effect in Jan 2017, was previously a tax rebate for first-time buyers worth €20,000, but the recent stimulus package has raised this to €30,000.
The rebate is only available to first time buyers purchasing a newly built home or building one themselves. In order to claim the tax back, the buyer must have paid at least the figure being claimed to the Revenue in previous years (through Dirt or Tax).
The scheme was met with some scepticism when it was initially launched, with many believing it had the potential to drive up house prices. The idea of ending the scheme has been up for discussion a few times; however it was extended again in the last budget.
You would assume that this would be good news for homebuyers?
It sounds like a win win for first time buyers, however the Covid-19 pandemic has severely inhibited the construction sector in Ireland. It is estimated that for 2020 there will only be roughly two-thirds of the number of houses built that were built last year. Also last year’s number was significantly short of what was required to address the housing crisis. As well as this, not all of these new builds will go on sale in the open market. This means that there will be significantly fewer houses available to people using the help-to-buy scheme in 2020.
Secondly the scheme has only been extended until December 2020 which doesn’t leave a huge amount of time for people wanting to avail of it.
Will the help-to-buy scheme fuel an increase in house prices?
Thirdly there is the risk that the scheme fuels demand as opposed to increasing supply.
It eases the burden in the short term for first time buyers however; there is speculation that developers have simply increased the prices on new homes to match the increased affordability.
Has the mortgage approval process changed as a result of the help-to-buy scheme?
At the end of the day first-time buyers still have to go through the process of getting mortgage approval. The rule of 3.5 times earnings are still in place and this is where the difficulty is. Banks aren’t considering exceptions to the rules at the moment. Also first time buyers tend to be those who are less established in their workplace. They may be subject of cutbacks and perhaps are being paid through the TWSS scheme. This makes the mortgage approval process very cumbersome.
What the housing market needs is a greater supply as opposed to stimulus packages such as this which simply inflates prices and does little for the first time buyer.
For additional information on mortgages, please visit our mortgage protection Dublin page.
Rob O’Neill - CEO Citywide Financial