New €400m first-time buyers scheme will not add to inflation, Minister says

The Government’s new flagship scheme to make housing more affordable for first-time buyers will not fuel inflation, the Minister for Housing Darragh O’Brien has said.

Mr O’Brien was speaking at the launch of the Government’s €400m First Home scheme which will see the State take up to a 30 per cent equity stake in a property.

Under the new scheme, which Mr O’Brien described as the most significant housing intervention in a generation, financial support will be given to borrowers to help them buy a new home that they could not otherwise afford to buy after combining their available mortgage and deposit.

Mr O’Brien said the scheme was designed to stimulate supply by telling lenders that there was a pipeline of potential buyers. He denied the scheme would add to inflationary pressures and said the Government is looking at activating “around €75m to €80m in mortgages this year, it’s a tiny percentage of the overall market”.

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[ Explainer: How will the Government’s new First Home scheme work, and can I get access? ]

“There are people who are paying €2,000 a month in rent who can’t get mortgages who will be paying €1,100 in a mortgage if they get a home with this scheme.”

Buyers will have the option, but not the obligation, to buy out some or all of the First Home scheme equity stake at any time if they wish and have the resources to do so.

From year six onwards, people who availed of the scheme will be liable for a service charge starting at 1.75pc of the euro value of the original equity provided. This service charge will increase to 2.15pc from year 16 and to 2.85pc from year 30. Homeowners will have the option of paying this charge each year or deferring the payment until the property is sold. Applicants will have to borrow the maximum mortgage amount available to them in order to allay fears that people who can afford such properties will apply for the funding.

A number of banks have signed up to the scheme and at present it is open to customers of AIB, including their EBS and Haven mortgage businesses, Bank of Ireland and Permanent TSB.

There will be price caps for the scheme but this will depend on what local authority the property is situated in. The caps range from €250,000 to €450,000.

A number of banking representatives have spoken in favour of the scheme. The chief executive of AIB Colin Hunt said that addressing the housing supply deficit is one of the most urgent social and economic issues the country is facing.

Speaking at the launch, Mr O Brien said the scheme “will literally open the door for many first-time buyers. Affordability and the chance to buy a home is very much at the centre of this Government’s housing policy. In Housing for All, our new housing plan for Ireland, we committed to establishing a scheme, in partnership with participating mortgage lenders, which would make home ownership easier for those who were finding that aspiration just out of reach.”