Easy mortgages for first-time buyers are on the way
Loans of up to 95pc will be offered to young borrowers
Published 13/05/2014 | 02:30
THE Government is planning to make it easier for first-time buyers to get a mortgage in an effort to kickstart house building.
A portion of the mortgages to first-time buyers of new houses will be guaranteed by the State in order to allow banks give out more loans.
The sharing of the risk will be undertaken through a government mortgage insurance scheme, paid for by the banks.
This scheme will allow the first-time buyers to buy their houses with smaller deposits, by giving out mortgages worth up to 95pc of the value of the home.
A lower level of risk to the bank will also potentially lower the buyer's mortgage repayments.
The increased level of mortgage funding is expected to provide certainty to the construction industry, allowing more homes to be built.
It is part of a coalition plan to speed up the building of family homes and create 60,000 jobs in the construction sector. But the scheme will be tightly regulated to ensure it does not add to the property bubble of spiralling house prices.
"The key has to be that the scheme has a greater impact on supply than on demand," a government source said.
The plan will mimic similar schemes operated in Canada, Australia and Britain.
But it won't be an exact copy of the British 'Help to Buy' scheme which was available for all houses – new and previously occupied – worth up to €800,000 and merely inflated the market.
This scheme would be restricted to first-time buyers of new houses, with a cap on the price of the house. Only buyers of average two- or three-bedroom new houses would benefit.
"It's fair to say that we've now ruled out a UK-style 'Help to Buy' scheme because of the potential impact on house-price inflation," said a source.
The new insurance scheme will essentially protect the banks from losing money if the mortgage holder fails to keep up payments.
The Government remains concerned about the ability of the banks to provide mortgages and the lack of supply in the housing market.
The proposal will be examined by the Department of Finance over the summer, with a view to having a report by the autumn and the scheme up and running by the end of the year.
The full construction sector plan, being marshalled by Taoiseach Enda Kenny personally, is approved by the Cabinet and will be published later this week.
The whole plan is aimed at tripling the number of houses built, from 8,000 units last year to 25,000 by 2016.
But the Coalition feels the construction sector does not believe the banks are capable of providing an adequate level of mortgage lending to match such an increase in output.
Government officials believe the banks are currently “rationing” mortgage funding.
“The banks are offering
90pc mortgages but they are rationing them because it's so capital intensive for the banks,” a source said.
“We're studying the merits of a targeted and limited intervention, aimed at stimulating additional mortgage lending for new housing output only.
“If the impact on housing supply is as big or bigger than the impact on housing demand, then the effect would be to improve housing affordability – while also stimulating increased construction activity and employment. We've an open mind at this point.
“Any scheme would almost certainly give the Central Bank the power to set minimum standards for the types of mortgages that would qualify, such as the minimum deposit required, maximum loan to income ratios, quality of documentation required in certifying house values and income levels.
“In order to preserve financial stability and avoid another boom-bust cycle, the Central Bank could alter the parameters of the scheme depending on the state of the market.”
The shortage of new housing in Dublin and other urban centres is causing property prices to soar, as demand for family homes is not being met by the supply. In the capital, there is intense competition to buy houses in areas inside the M50 close to schools, hospitals and public transport.
The new plan aims to boost construction in areas where affordable homes are most needed, while also creating jobs.
The whole plan is aimed at tripling the number of houses built from 8,000 units last year to 25,000 by 2016. That compares with 93,419 houses that were built in 2006, as the end of the boom approached.
The Cabinet will hold a special meeting on Thursday to discuss a draft, but further decisions are not expected for another month.
The Government believes the level of construction is not keeping pace with the new housing demand and infrastructure requirements of the country.
At the moment, there are 90,000 construction workers drawing the dole, with doubts over whether they can be retrained for other jobs.
The construction industry is actually underperforming as it accounts for just 6pc of GNP. The aim is to bring this up to 12pc and create 60,000 jobs in the process – 12,000 in the next year alone.
The construction sector plan will also include measures around the planning system and measures to increase financing for the construction industry:
* A further €2bn from NAMA to build 4,500 new houses and apartments in Dublin alone.
* The new Irish Strategic Investment Fund will provide equity and loans on commercial terms to developers who cannot access finance.
* Developers will build and manage additional social housing and be guaranteed an income through rents under the Housing Assistance Payment.