Business Personal Finance

Sunday 19 January 2020

Sharper rise in house prices predicted with help-to-buy scheme

Defensive: Simon Coveney Picture: Collins Dublin
Defensive: Simon Coveney Picture: Collins Dublin

Charlie Weston and Kevin Doyle

The Government's new help-to-buy scheme will push up prices next year and the following year, according to a stockbroker.

An analysis by Davy sees prices rising by 7pc next year.

This would mean a €300,000 home would be €21,000 more expensive next year.

The stockbroker had expected prices to rise by 5pc next year, but is now predicting higher growth due to the new first-time buyer incentive and a tighter housing market.

Davy expects prices to rise by 6pc in 2018, and then by 5pc after that.

Housing Minister Simon Coveney has been repeatedly forced to defend the help-to-buy initiative since it was announced in the Budget earlier this month.

And he has defended changes to the scheme, describing them as worth implementing and "relatively minor".

The changes mean applicants must take out a mortgage of at least 70pc of the value of a home to qualify, instead of the original figure of 80pc.

Economist Conall Mac Coille of Davy said in the report on the property market that the help-to-buy scheme would push up prices next year.

"This follows stronger-than-expected price movements in 2016, a tighter housing market and the new help-to-buy scheme, which provides home buyers with a 5pc tax rebate," he said.

The economist predicted that the first-time buyer tax rebate will have a broader take-up than a similar UK scheme.

Mr Mac Coille said that the incentive would average around €10,000 for first-time buyers availing of it to purchase or build a new home.

He estimated 5,000 borrowers would avail of the scheme.

Davy also expects growth in the mortgage market. It is forecasting lending of €5bn this year.

This will rise to €6.2bn in 2017 and €10.2bn by 2020, provided that home building rises towards the 25,000 units a year.

This figure is seen as necessary to satisfy demographic demand.

Figures from the Central Statistics Office last week showed prices rose by 7.2pc in the year up to August.

This was the sharpest annual increase since June of last year.

The new research comes after Governor of the Central Bank Philip Lane hit out at the help-to-buy scheme. He said it could end up serving as a subsidy for builders.

Prof Lane said that unless there was a big increase in the number of new builds, the scheme would benefit builders more than borrowers.

He also says the scheme runs the risk of helping households that do not need assistance to pull together the deposit for a home.

Meanwhile, a survey among first-time buyers done for Bank of Ireland shows that most of them believe the new help-to-buy scheme introduced in the Budget will make it easier for them to buy their first home.

A third said it would not help, and 16pc were unsure.

The survey was conducted among more than 200 prospective first-time buyers countrywide, in the 25 to 45 age group, by Red C for Bank of Ireland.

The vast majority of those surveyed are currently renting, paying an average of €840 per month, with 32pc paying more than €1,000 per month in rent.

When asked about the single biggest challenge facing first-time buyers, 46pc said it was the cost of property, 30pc said it was the ability to save for the deposit, and 15pc said it was the lack of availability of supply in the areas in which they would like to buy.

Most first-time buyers are already saving to buy a home and of these half have been saving for more than two years.

Some 22pc have been saving for one to two years, while the remainder have been saving for less than one year.

Irish Independent

Also in Business