Two State schemes are proving to be a massive boon for home buyers.
he Help-To-Buy refund and the shared-equity First Home Scheme are helping the squeezed middle who are caught paying sky-high rents to get their own homes.
But there is criticism that the schemes are boosting the prices of new homes, while buyers still have to contend with a chronic shortage of homes to purchase.
Q: What is this First Home Scheme (FHS)?
A: Many house hunters believe it to be a social or affordable housing scheme, but it is not. The scheme is a €400m fund run by First Home Scheme DAC.
It is backed by the State and AIB, Bank of Ireland and Permanent TSB. It is for new homes only, and applies to first-buyers, divorced people, those declared insolvent, and those who no longer have an interest in the family home, or any other property. You need to have mortgage approval, a 10pc deposit, and it is only for a principal private residence.
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There is a ceiling of €450,000 on house values for Dublin and €375,000 in most other areas. People have to apply through their local authority. The fund will take an equity stake in your property of up to 30pc. Once the equity is redeemed the charge will drop away. No interest to be paid for the first six years. The equity stake does not need to be repaid if the buyers can’t afford to do so, but they can pay it off at any stage without penalty.
Q: How does the Help-To-Buy scheme work?
A: The scheme allows first-time buyers to claim tax relief for the previous four years. It only applies to properties that cost €500,000 or less to buy or to have a completion value of €500,000 if it is a self-build. Essentially it means that income tax and Deposit Interest Retention Tax (Dirt) paid in Ireland over the past four tax years is refundable to approved applicants.
The maximum tax rebate is 10pc of the value of the property, up to €30,000. Applicants must have taken out a mortgage of at least 70pc of the purchase price of the home, or in the case of a self-build, 70pc of the valuation approved by the mortgage provider.
Q: Can I combine the two schemes?
A: Yes, with the only proviso being that when you use the two schemes together, the equity stake in the home that the First Home Scheme fund can take reduces from a maximum of 30pc to 20pc.
Using the two schemes means that on a €475,000 property in the Dublin area, close to €100,000 can be knocked off what the buyers need to borrow.
Q: Can you give me an example of how all this works?
A: Take a house that is selling for €320,000. The buyers have an income of €60,000. This means they can borrow no more than €240,000.
The first-time buyer couple is eligible for €30,000 tax refund under the Help-To-Buy scheme. They have a deposit of €15,000. But there is a shortfall of €35,000.
The First Home Scheme will provide equity of €35,000 to bridge the gap, and it will hold equity of 11pc, according to an example worked out by Doddl.ie. The combination of the two schemes means the buyers be able to cut borrowing by €70,000 and will be able to bridge the gap to the €320,000 purchase price.