Affordable mortgage scheme 'cumbersome' for borrrowers, 'not a threat' to banks - Davy
The government’s new affordable mortgage scheme does not represent a significant threat to banking competition and will remain a "niche offering", according to a report from Davy Stockbrokers this morning.
But Davy also claimed the new scheme is likely to be “cumbersome” for borrowers.
“The bigger picture is one of a government willing to do whatever it takes to support the housing market, underpinning our confidence in the continued growth in new mortgage lending,” the broker said.
Under the new scheme, details of which were unveiled last month, first-time buyers will be able to get a loan of up to €288,000 with an interest rate of 2.25pc for 30 years, and 2pc for 25 years. The €288,000 borrowing limit only applies in Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow, while it’s €250,000 in the rest of the country.
That rates are much lower than the variable and fixed rates offered by mainstream banking lenders.
However, the scheme is only available to single people earning no more than €50,000 a year, and couples on no more than a combined €75,000. The scheme can be used to buy new or second-hand homes, but applicants for the scheme must have been rejected for a mortgage, or offered insufficient finance, by at least two lenders.
“Affordable mortgages will be issued via local authorities at attractive long-term rates subject to income and property value thresholds, although the process is likely to take some time and prove cumbersome for prospective borrowers,” according to Davy Stockbrokers.
It added: “Investors have expressed concern that the government is seeking to compete with the banks and drive down mortgage pricing. However, we expect the fund to remain a niche offering.
“We are not unduly concerned about the government’s planned intervention,” added the stockbroker.
“The €200m affordable mortgage scheme is a refresh of the little-used ‘Home Choice Loan’ scheme, albeit with more attractive rates.”