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ACCORDING TO THE latest DAFT property index, the average asking price for a home in Ireland is now just over €320,000. That makes the average repayment on a 90% mortgage around €1,300 a month much cheaper than the average rent of €1,721 and theoretically within the reach of the typical renter.
The catch? To buy that home, you will also need to find a deposit of €32,000, pretty much impossible to do when you are paying so much on rent.
For those unable to rely on the ‘bank of mum and dad’ the way around this is to use the Help to Buy scheme to fund the required 10% down payment.
However, the scheme only applies to new build properties which are €87,000 more expensive than average at €407,000 according to the same report. Making the mortgage required too large for many would-be First Time Buyers.
This is where the other big housing support, the First Home Scheme should come into play, launched in July 2022 it provides First Time Buyers additional finance for new builds through a shared equity plan.
When used with Help to Buy it gives First Time Buyers a further 20% of the purchase price upfront, in return for the scheme getting the same share of your home when you sell at an ultra low fixed interest rate of under 2% per year on average.
On a new build of €407,000 a buyer could therefore get most of their deposit of 10% funded through Help to Buy (€30,000) and then 20% (€81,400) from the First Home Scheme, leaving €10,700 from savings and €284,900 to be funded through a mortgage.
Including the average interest on the equity, the total repayments in this example would be €1,350 a month, only around €40 a month more than if the First Time Buyer had bought a non new build property for €320,000. If you want to work out your own budget you can use a mortgage calculator to work out your buying options or a mortgage repayment calculator to work out what your repayments would be.
Crucially though, with the new build, instead of forking out €32,000 you only need to find €10,700 for the deposit in this example thanks to the Help to Buy scheme. The First Home Scheme is based on a successful UK scheme introduced in 2013 and used with the Help to Buy Scheme has huge potential to free trapped renters by helping households who can’t access additional funds from family. Based on the UK numbers, the scheme could help over 30,000 Irish households to get on the property ladder. To date though only 1,255 homes have been purchased with the scheme, with 7,530 applying.
Some of the low take up so far is due to the lack of understanding of the scheme, but the biggest issue by far is the property price ceilings currently imposed by the scheme.
In Dublin for example the scheme can only be used to purchase properties for less than €495,000, but the vast majority of Dublin’s new builds are already considerably more expensive than that according to the same Daft.ie report.
The worry in Government circles is that without caps limiting the availability of the scheme new build house prices will rise even further.
They will, but that shouldn’t matter, as those houses are still more affordable due to the subsidies being available. It’s whether houses are affordable after the subsidies that matters, not whether house prices seem high or low.
Contrary to what many think, developers aren’t making super profits on new housing developments right now, as costs have shot up in the last few years. That’s why housing construction and supply are so limited. Higher new build prices will therefore stimulate supply by making developing more profitable and help fix the root cause of our housing crisis, supply.
Politicians and policymakers are paranoid about high house prices and the negative headlines that come with them, but that’s the tail wagging the dog. What they should worry about instead is expanding housing affordability.
The Help to Buy and First Home Scheme have huge potential to help us fix both housing supply long term and help trapped renters in the short term if we have the courage to lift the current caps.
Mark Coan is Founder of Online Financial Guide moneysherpa.ie.
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The market needs to be temporarily flooded with state funded social homes. Build council estates again. Where does the money come from? The same money tree that sprung up to house those fleeing Ukraine. Money trees exist .
@Argus Romsworth: labour to build those houses does not exist
@Mark Smyth: or maybe the government not partake in the private housing market. near 50% of new homes purchased in the state last year were purchased by the government via Local Authorities and Approved Housing Bodies. 50% of new homes being purchased, 50% of rents being subsidised, yeeahhh thats a financially sustainable long term plan.
@Mark Smyth: thats a factually incorrect urban myth. according to the latest CSO data, there is the same number of people employed in construction industry as there was in 2004 when we were building 70,000 houses per year.
@Mark Smyth: tell us with all your years in construction recruitment how many jobs have been cancelled in the last 5 years because there was no workers? I’ll give you a hint- none
@Martin Mongan: no need to get snarky, u need to calm down.
@Martin Mongan: the issue isn’t how many were cancelled, the issue is as we have seen over the last number of years that housing output is in and around 30k a year. We can’t flood the market with social housing estates as they can’t be built.
@Mark Smyth: housing output is low because we’ve been prioritising hotels, offices data centres and other commercial builds not because there’s a lack of workers. The lack of workers is total nonsense ie there’s been NO commercial project that’s been cancelled because lack of workers. The time spent on groundwork’s for a date centre alone you would build a housing estate.
@Niall English: Private builds was 5500 and never went on the market. There is 520 approved housing bodies acquiring houses for social housing as well as professional investment funds and local authorities bulk buying properties – all for social housing use.
First time buyers are generally priced out of new build markets as even Leo pointed out. They are left to scramble in a bidding war over substandard ex corporation houses that would need extensive renovation. The system is totally weighted in favour of social housing, to the detrimental of working people.
@Thomas Sheridan: 100% agree
@Thomas Sheridan: yes because the private sector builds the houses, then sells them for way more then the asking price and on it continues. The state isn’t building them. The state is buying them. And if a private fund rents to the council guess what? Tax free. The current system only drives up prices because the state point blank refuses to build the houses which was done in 50’s 60s 70s and 80s and guess what? It worked.
€320k may be reachable (two incomes of 50k times 3.2 ) but needs both parties working.
That is not right for the AVERAGE home. We gave given up too much for the capitalist dream.
He omits to say that the help to buy scheme in UK was responsible for inflating house prices. Which is why it was scrapped in March last year. All schemes like this simply distort the market and achieve nothing for house buyers,
Market forces trump everything, Right now demand is far greater than the supply. So reduce demand (slow population growth) or increase supply (more housing). Nothing else works.
@Fran Ken: maybe tax breaks for developers that produce units at a set lower affordable target.
@brian o’leary:
Any politician who suggests tax breaks for developers is likely looking forward to a short career.
@P.J. Nolan: I know, but wouldn’t the ends justify the means?
@Fran Ken: but our governments aim is to keep houses prices over inflated, hence why they have all these schemes. there policy is to make unaffordable houses affordable. be the tax payer footing the bill when it all goes belly up. anyone signing up for the shared equity scheme needs their head examined. theres a reason they implore you to consult a financial consultant before applying.
Great article. Housing affordability is the key to avoiding another financial crisis meltdown. One of the the keys anyway. So. How to encourage our leaders to lift those scheme caps to a level that would make a difference for trapped renters?
“The catch? To buy that home, you will also need to find a deposit of €32,000, pretty much impossible to do when you are paying so much on rent.”
And you also need Stamp duty, Solicitor fees, Ground fees, Surveys etc. So that 32K easily becomes 42K, Actually more for us as wehad to oull out of a sale agreed after the surveys were done. You stil have to pay the solicitor and engineers though.
Lower cost of housing will be down to more stock available which in turn would mean lower rents as well. Prices are just way out of whack and all of these wheezes like help to buy and shared equity only contribute to that.
have your say