09 Mar 2017
Crisis? What crisis? You only have to look at high rents, low housing stock, and sluggish construction rates to know that the Irish housing market needs more than a band-aid to fix it.
Just ask anyone who’s been approved for a mortgage but can’t find a house. Or someone who’s struggling to pay sky high rents while saving for a deposit. Luckily, a new government initiative is set to introduce significant changes to the existing system.
Housing Minister Simon Coveney has recently announced a new strategy to tackle the crisis with the newly-released Government Action Plan for Housing. For first time buyers, the main takeaway is that they’ve been promised help to buy a home.
What is the Government Action Plan for Housing?
The new plan is designed to tackle homelessness, provide social housing, build more homes, improve the rental sector and bring existing housing stock back into the fold. Minister Coveney confirmed this week that the government will spend €5.3 billion on providing 47,000 social housing units by 2021. The plan’s also going to address the private housing sector and the problems affecting it.
That all sounds pretty good, right? Yes, siree. It’s one of the most ambitious housing initiatives in the State’s history and it aims to make more social, private and rental properties available. The hope is that the initiative will tackle many of the existing problems but the plan is also designed to introduce root and branch changes to the way the market works in Ireland.
We know that first time buyers have it tough. So this scheme is music to our ears, as the production of more houses will benefit first time buyers who are struggling to find a home in a seriously competitive market. The introduction of an affordable rental scheme will also help people saving for a house by tackling the issue of soaring rents.
Sounds great! But give me the specifics...
What does the plan say about first time buyers?
First time buyers will have to wait until October’s budget to get an exact breakdown of what the new plan will do for them. The good news is that Minister Coveney has confirmed that any new benefits would be backdated to July 20th.
The new strategy recognises the headaches facing first time buyers and promises to “develop a new ‘Help to Buy’ scheme to ensure availability of adequate, affordable mortgage finance or mortgage insurance for first time buyers as new housing output comes on-stream.”
So how might first time buyers benefit?
If you’ve just read that statement and you’re still not sure what it all means, that’s not entirely surprising. The details of how the scheme will benefit you as a first time buyer are pretty vague. Early reports have claimed that the new benefits will take the form of tax rebates with the possibility of a top-up subsidy for buyers.
Experts have speculated that new buyers could get a top-up for their mortgage deposit and/or a tax relief to make it easier to afford their first home. The Action Plan for Housing and Homelessness report reveals that a “Help to Buy” scheme will introduce “adequate, affordable mortgage finance or mortgage insurance for first-time buyers.” Mortgage insurance is one way for lenders to accept a smaller deposit without taking on more risk.
Some commentators have claimed that any package introduced for first time buyers would need to be worth €10,000 per couple to make a difference. Along with the new EBS Back in Cash Offer, this could go a long way to helping you buy your first home. Don’t forget that EBS currently offers you 2% of the value of your mortgage back in cash if you’re a first time buyer.
What other solutions will help first time buyers?
One of the existing issues is the cost of construction versus what a buyer can afford to pay. Speaking after the plan was announced, Minister Coveney pointed out that there’s a problem if it costs €300,000 to build a new house in Dublin but first time buyers can only get mortgage approval for €250,000. The only way to stimulate more new builds is to close this gap.
The Minister believes that this issue is locking about two thirds of first time buyers out of the market. One solution is to get private developers to build on public land, with the proviso that they provide social housing or affordable rental accommodation in exchange for access to this land. This may reduce construction costs and result in cheaper properties coming on the market.
The plan would also look to ensure that builders can get access to finance in order to build houses. Ultimately, more housing stock would increase the supply and should provide more access to affordable housing for first time buyers.
What are the potential problems with the plan?
When something sounds too good to be true... there are usually a few issues lurking under the surface. So what do these look like?
Critics have pointed out that the existing Central Bank regulations make it harder for first time buyers to get a mortgage. The Construction Industry Federation say that builders won’t build homes if people can’t afford to buy them. The proposals to provide first time buyers with some type of budgetary relief is one way to tackle this problem.
Experts have warned that giving first time buyers grants will solve nothing unless more houses come on the market. Offering financial assistance without stimulating the construction of more properties will just see even more people fighting over the same limited stock of houses. You don’t need to be an economist to see how this could cause even more issues.
The plan will probably need to be implemented by more than one government to fulfil its commitments. So political will could yet be a stumbling block. It needs to get cross-party support to ensure that it’s pushed through, even if the current government doesn’t survive to see it come to fruition.
The Minister has admitted that the current plan isn’t perfect but it looks certain to undergo some changes before it is fully implemented. The release of budgetary allowances for first time buyers will also reveal more about how it will work. One thing for sure is that it’s a major step towards addressing the problem and the next few months will be of huge interest to prospective home owners.
Thinking of buying your first home?
The new strategy means that it’s a time of great change for anyone thinking of buying their first home. On the bright side, anyone who buys a home between now and the mortgage can avail of the backdated benefits of the scheme.
If you’re thinking of buying your own home and want to know how much you can afford to borrow, why not book a mortgage meeting with one of our mortgage experts. Don’t forget to visit our Facebook page for the latest home inspiration, news and great competitions.
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