Fixed 2% mortgage rates on the way for some first-time buyers

Fixed 2% mortgage rates on the way for some first-time buyers
Mark Whelan

Mark Whelan

Staff Writer

First-time buyers who have been frustrated in their attempts to buy a home will soon be able to apply for a Government-back mortgage with a rate of 2%. So, what are the eligibility criteria for the Government’s new housing scheme?

The challenges facing Ireland’s first-time buyers are well-documented.

Rents are at an all-time high, house prices are up 9.2% year on year and the banks still require a minimum deposit of 10% from first-time buyers looking to get on the property ladder.

Coupled with a chronic housing shortage, these conditions have created a perfect storm of barriers for prospective buyers.

To help make housing more accessible, the Government recently renewed its commitment to the Help-To-Buy Scheme and has now launched a new initiative, designed to help certain first-time buyers who have been unsuccessful in their attempts to make that elusive house purchase.

What are the details of the new scheme?

From February 1st, first-time buyers who meet certain criteria (detailed below) will be able to apply for a Government-funded Rebuilding Ireland Home Loan from a local authority.

The Government has committed €200 million to the scheme for 2018. If it’s successful, this amount could be increased next year.

What are the eligibility criteria?

To qualify, first-time buyers must have a gross annual income of €40,000 or less; couples applying together must earn must earn €75,000 or less.

Applicants must also have had mortgage applications rejected or been offered a loan that wasn’t large enough to make a purchase on at least two occasions.

What type of property can be purchased with a Rebuilding Ireland Home Loan?

Rebuilding Ireland Home Loans can be put towards new builds, second-hand homes and self-builds.

Houses with a value of up to €320,000 in the greater Dublin area, Cork and Galway can be purchased under the scheme. In all other parts of the country, values are capped at €250,000.

The Central Bank’s loan-to-value ratio rule still applies, meaning that first-time buyers must provide a deposit of 10% when making a purchase.

What mortgage rates are available?

Mortgage rates of as little as 2% to 2.25% are available with a Rebuilding Ireland Home Loan.

Significantly, these rates are fixed for 25 to 30 years, giving certainty and peace of mind to borrowers.

These rates will be the lowest first-time buyer rates available on the Irish market by some margin.

How do Rebuilding Ireland Home Loan rates compare to the banks’ best rates?

Ireland’s mortgage rates are still among the highest in the EU, despite cuts from most leading lenders in 2017.

The best first-time buyer rate available at the moment is 3.15%. So, a Rebuilding Ireland Home Loan will be significantly cheaper over the lifetime of a mortgage.

Take a first-time buyer looking to buy a house in Dublin for €320,000, for example. Let’s say she/he has the requisite 10% deposit (€32,000) and is looking to borrow the remainder; €288,000.

With a repayment rate of 3.15%, her/his monthly repayments will be €1,388 every month. Over 25 years, that’s a total of around €416,000.

With a fixed rate of 2%, however, a mortgage for the same property would cost €1,220 every month, or about €366,000 over 25 years. That’s over €50,000 cheaper.

How can I apply?

The Government's new scheme will launch on February 1st when goes live.

First-time buyers who don’t qualify for a Rebuilding Ireland Home Loan should compare mortgage rates from Ireland’s leading lenders to find the best rates available.

Pressure on the banks

This latest attempt by the Government to tackle Ireland's housing issues is unlikely to solve the fundamental problems of low supply and pent-up demand, but it should significantly help a select group of first-time buyers.

The greatest impact of the initiative could be the pressure it puts on Ireland's leading lenders. Borrowers across the country will rightfully wonder why it is feasible for the Government to fund loans at 2% over 25 years, at a time when traditional lenders still seem reluctant to offer sub-3% loans to anyone.

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