Rebuilding Ireland Home Loan Introduced
The Rebuilding Ireland Home Loan, a new Government-backed mortgage for first-time buyers, will be available nationwide from local authorities from Thursday, 1 February 2018. The loan can be used both for new and second-hand properties, or to build your own home.
In line with Central Bank rules, a person or couple can borrow up to 90% of the market value of the property. Under the loan, they can choose a fixed rate of 2%-2.25% interest for 25-30 years, so they will have absolute certainty of their repayments over the lifetime of the loan.
The scheme is designed to ensure that a person or couple can purchase a home, while ensuring that they can still keep their monthly repayments to one third of their net disposable income – with no risk of their mortgage rate rising and so no threat to their ability to afford repayments, giving them certainty and security.
To avail of the Rebuilding Ireland Home Loan, annual gross income cannot exceed €50,000 as a single applicant, or €75,000 for joint applicants. There’s also a cap on the value of the home that can be purchased. In the Greater Dublin Area, Cork and Galway, the maximum market value is €320,000. In the rest of the country, it is €250,000.
So, for example, a person earning €40,000 a year and living in Mayo could afford to buy a house worth €224,920, provided they had the deposit of €22,400. They could then borrow €198,000 from their local authority and their monthly repayments would be in the region of €858 a month, or 33% of their Net Disposable Income.
As a second example, a couple earning €75,000 and living in Dublin could afford to buy a house worth €320,000, provided they had €32,000 as a deposit between them. They could then borrow €288,000 from their local authority and their monthly repayments would be €1,221, or 24% of their Net Disposable Income.
“We are determined as a Government to increase the stock of social housing by 50,000 homes by 2021 under Rebuilding Ireland, with money securely ring-fenced to do this. After our first 18 months of work, we are ahead of target. Yet there are people in our communities who are not eligible for social housing, but who also cannot afford to rent or buy their own home,” explains Eoghan Murphy TD, Minister for Housing, Planning and Local Government.
He elaborates: “As tens of thousands of new homes are built across the country over the coming years, we have to ensure that they are affordable. At the moment we are doing this by removing costs for builders and developers so they can deliver more affordable homes.”
Some of the Government’s actions include:
* a new fast-track planning process for large developments and apartments to speed up decisions and provide greater certainty for developers;
* a dedicated infrastructure fund to open up land for development more quickly and enable developers to offer homes at reduced prices;
* new apartment guidelines that will allow more homes to be built on a site, while also removing unnecessary costs such as expensive-to-provide car parking spaces where they are not needed; and
* a new State funded bank to provide competitive loans for builders, keeping their costs low.
Minister Murphy continues: “Each of these innovations will facilitate the construction of thousands of new homes across the country at more affordable prices. Still, as a Government we recognise that we have to do more; we have to guarantee that homes are affordable for the buyer and renter.”
The Government has adopted a three-pronged approach:
- Rebuilding Ireland Home Loan
- Affordable Purchase Scheme
- Affordable Rental Scheme.
Affordable Purchase Scheme
A new Affordable Purchase Scheme is a national scheme that will see affordable homes built initially on State land, in co-operation with local authorities.
The same income limits as under the Rebuilding Ireland Home Loan will apply for applicants to be eligible to purchase homes under the scheme – annual gross income cannot exceed €50,000 as a single applicant, or €75,000 for joint applicants. Further qualifying criteria will be determined in consultation with the Housing Agency, the Oireachtas, local authorities and other stakeholders, and will be reflected in the regulations to launch the scheme next month.
The purpose of this scheme is to enable people to get a home of their own, supported by and in partnership with the State. With local authorities providing the land at reduced or no cost to facilitate affordable homes, the price of the affordable house will be discounted and the State will retain an equity share in the house, relative to the discount from the full price. So for example, a house that costs €250,000 may be made available to purchase at €200,000. The equity share can be paid off, interest free, by the purchaser at a later date. Or if the owner wants to sell early, the State can take that portion back at the time of sale.
Initial sites and finance have already been provided for affordable housing, through the €25m serviced sites fund announced in Budget 2018, and the €200m LIHAF infrastructural investment fund, which was extended in Budget 2018; as well as through projects of scale underway in places like O’Devaney Gardens in Dublin City Centre, for example.
“We have four major ready-to-go sites in Dublin being advanced through procurement with construction likely to start before year-end. Currently, the potential for more than 3,000 new homes has been projected under this scheme. Our ambition is for at least 10,000,” he points out. “We are working to increase the ambition of this programme to see more affordable homes from State-owned sites and I have asked local authorities to come back to me with ambitious proposals for an affordable programme on their lands.”
Funds built up from the equity retained in the affordable homes will be used to invest in building more affordable homes. The Government will also use its new Residential Land Management and Development Group, led by Minister of State Damien English TD, to monitor and accelerate the delivery of more affordable housing.
Affordable Rental Scheme
While house prices are still well off their peak nationally, at 71% of what they were in 2007, rents in places like Dublin have surpassed their 2007 peak by 14%. To tackle this, the Government has:
* introduced Rent Pressure Zones, to effectively cap rent increases at 4% a year where the zones apply; and
* introduced new ‘Build to Rent’ and ‘co-living’ guidelines to encourage development and investment in more rental accommodation at more affordable rents.
A further way of addressing affordability of homes is through an Affordable Rental Scheme. This will be done using a cost rental model. Cost rental means that the rent paid covers the cost of building the property, together with ongoing management and maintenance charges, but with a minimal profit margin included. This provides greater certainty around the rent, regardless of what is happening in the market.
A pilot project on this initiative is currently being progressed in Dun Laoghaire-Rathdown County Council, in conjunction with the Housing Agency and an Approved Housing Body, using publicly-owned land. This pilot is expected to go to the market later this year to secure a development partner and the best value for the State and prospective renters.
“Our ambition is to make this a major part of our housing system, though this will take time to deliver. Currently, discussions are ongoing with the European Investment Bank about cost rental and other affordable models that could work in Ireland. This work will progress in tandem with the first pilot,” he comments.
Other affordable rental models are being examined for delivery through the infrastructural investment fund. For example, in the South Docks project in Cork, an affordable rental model is currently being developed which would see the Local Authority taking a proportion of the units in a Build to Rent development as affordable units for a period of 25 years.
Minister Eoghan Murphy concludes: “Thousands of new homes are being built every year. In 2017, over 17,500 new homes commenced construction, three times as many as in 2016. A huge amount of effort and resources are already being invested in the construction of new social homes to help those who need our help the most. The Government recognises the need to broaden its focus and priorities to bridge the affordability gap that has arisen for many households. We see these initiatives as important additional steps in building capacity and ambition within the housing system to create a more affordable and sustainable housing sector and ease the financial burden and uncertainty on many people.”