Sunday 21 January 2018

Charlie Weston: Government's help-to-buy scheme may end up being huge flop

Around 90pc of new properties sell for €400,000 or less across the country, with 70pc in Dublin selling for €400,000 or less. Photo: Reuters
Around 90pc of new properties sell for €400,000 or less across the country, with 70pc in Dublin selling for €400,000 or less. Photo: Reuters
Charlie Weston

Charlie Weston

There is every likelihood the help-to-buy scheme announced in the Budget will go the way of the previous attempt by the Government to give help to first-time buyers and prove to be a flop.

The existing plan allows first-time buyers to benefit from a savings tax relief scheme. It allows people purchasing their first home to claim a refund of deposit interest retention tax (DIRT) on savings. The relief applies to tax paid on savings for a mortgage deposit up to 20pc of the house price.

But it has proved to be a damp squib.

Fewer than 500 people have been refunded DIRT tax since the scheme was introduced in October, 2014.

Just €326,888 had been refunded to 335 applicants by May of this year.

The scheme, which expires at the end of next year, was intended to reduce the impact of tighter mortgage rules imposed by the Central Bank. Now the Government has announced a new help-to-buy scheme, promising income tax rebates on the purchase of new homes.

It provides first-time buyers with a rebate of income tax paid over the previous four tax years, up to 5pc of the purchase price of a new home, to a value of €400,000.

The maximum tax rebate available to first-time buyers will be €20,000. The scheme applies to homes up to €600,000, but not beyond, and the most you can get is €20,000.

The rebate will mean that instead of having to save a deposit of €58,000 for a €400,000 house, the rebate will mean a buyer will only have to save €38,000.

Housing Minister Simon Coveney rejected claims it will increase the price of houses.

The scheme will apply to the purchase of newly built homes and self-builds, by first-time buyers from July 19 this year, until the end of 2019.

Mr Coveney said he expected between 4,000 to 6,000 first-time buyers would benefit from the initiative next year and also stressed that this was for people obtaining mortgages, and not cash buyers.

There is a lot of disquiet that it only applies to new builds. A large number of economists and housing experts have lined up to condemn the scheme as doing nothing more than putting extra money into the pockets of developers.

The day after the scheme was announced it was noticeable that new house prices had gone up by around €20,000 in many places.

Will the new scheme become a subsidy for mansions?

It is extraordinary that the scheme extends to properties up to the value of €600,000. You could buy a ranch for that amount outside Dublin.

Around 90pc of new properties sell for €400,000 or less across the country, with 70pc in Dublin selling for €400,000 or less.

And then there is the requirement for first-time buyers to file a tax return for the previous four years. Many PAYE taxpayers will be shocked at this demand.

Typically, PAYE workers do not have to file a return unless they have additional non-PAYE income.

That seems like an unnecessary burden to place on buyers.

The scheme reflects the over-weaning influence that builders again have on policy.

There is no doubt it will push up the price of new properties and boost the returns of builders. But then that is probably exactly what Housing Minister Simon Coveney, and his fellow Cabinet ministers, are hoping to achieve.

They want house prices to rise and lift more people out of negative equity and create a feel-good factor for existing homeowners.

They just can't admit that, because rising house prices are a problem for first-time buyers.

Sunday Indo Business

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