Wednesday 12 December 2018

Affordable mortgage scheme won't lower rates - Davy

Housing Minister Eoghan Murphy
Housing Minister Eoghan Murphy
John Mulligan

John Mulligan

The Government's new affordable mortgage scheme won't bring down mortgage rates across the wider Irish market or take significant business away from the banks, according to Davy Stockbrokers.

The scheme does not represent any significant threat to banking competition and will remain a "niche offering", according to a report from the stockbrokers.

Davy also claimed the new scheme, which was announced by Housing Minister Eoghan Murphy, is likely to be "cumbersome" for borrowers. Under the new scheme, 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.

The rates are much lower than the variable and fixed rates offered by mainstream banking lenders.

Davy said introduction of the scheme has prompting concern among bank investors that it might take business away from the existing lenders or force them to drop interest rates.

"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."

While the rates beat anything offered by existing banks, 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," said Davy.

"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.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business