New mortgage deal will ultimately subsidise developers
Published 13/05/2014 | 02:30
IF houses are unaffordable then – all things being equal – either prices are too high or incomes are too low.
Sure, credit plays a major role in the property market, and when the banks were at their most battered, the lack of credit killed the market.
But there is no hard evidence that people applying for a mortgage are being turned away in unreasonable numbers.
There is a big cohort of people, especially in Dublin, who would like to buy homes but are not applying for mortgages. In many cases that's because of the difficulty of saving a 10pc deposit.
Throwing in a scheme that risks fuelling further house price rises will be no help if it leaves them trying to put together a 5pc deposit that is bigger than the 10pc of a lower house price which they couldn't save for in the first place.
Canada and the UK have used mortgage support schemes similar to the one now on the table here to drive lending, each with some success. Here, the idea is to be more targeted. Loan amounts will be capped, and deals will only be available for first-time buyers of newly built homes.
Capping loan sizes makes sense – and gives some protection to taxpayers, who will ultimately underwrite these plans.
But structuring mortgage supports to only apply for people buying new-build houses proves that this is a "help to build" scheme, not "help to buy". The scheme will ultimately help subsidise struggling developers, with taxpayers' cash on the line, and no guarantee homebuyers are left any better off.
There are other serious issues. Supports are being targeted only at people lucky enough not to have bought property when the bubble was at its most bloated. This is patently unfair to those who bought in the boom, and are left marooned in unsuitable homes and impractical locations.
Reviving construction does mean more homes and brings more jobs. That's what's behind this plan, but it is by no means clear that the scheme now on the table is really the best one to break the deadlock.