What is the First Home scheme?
The new scheme aims to help first-time buyers bridge the gap between the amount they can borrow and the amount needed to buy a home.
The First Home scheme is part of the Government’s Housing For All strategy. It was launched in July 2022 and is primarily designed to help first-time buyers bridge the gap between what they're allowed borrow under the Central Bank's mortgage lending rules and what they need to borrow in order to buy a home.
It is also designed to increase the supply of new homes and the hope is that builders will begin building to the specifications of the programme, thus providing housing for the "squeezed middle".
The scheme is expected to cover the purchase of 8,000 new homes over the next four years.
Interested and want to know if you qualify? Read on…
What exactly is the First Home scheme?
It is a shared equity scheme in which the Government takes a stake or ‘share’ in your home in return for providing you with up to 30% of the property price.
Can you give me an example?
Let’s say you’re earning €50,000 a year (which is close to the average full-time wage in Ireland). And you want to buy a home that’s €250,000.
You have the minimum deposit of €25,000, i.e. 10%.
Under the Central Bank’s mortgage lending rules you can only borrow up to 3.5 times your income, or in this case €175,000 (see here for more info on these rules).
So you’re short €50,000.
Under the First Home scheme the Government will give you €50,000 (or 20% of the property price in this example) in return for a stake in your home.
You can repay or 'buy out' the Government’s stake in your home at any time if you wish. But you’re under no obligation to.
Important point regarding the equity...
It's important to remember that the Government is providing an equity stake in your home. So the amount you owe will rise or fall depending on the price of your home.
So let's say you buy a home for €250,000 and the Government has provided €50,000 or 20% (as in the above example).
If you go to sell your home in a few years' time and its value has risen to €300,000, the Government will actually claw back €60,000 (which is 20% of the new price).
On the other hand, if the value of your home has fallen in the meantime, then the amount you owe will fall too.
Who is the scheme open to?
The scheme is open to first-time buyers, people who are divorced (and who may therefore have previously owned a home) and people who have been declared bankrupt (and who may also have previously owned a home).
Divorcees and people declared bankrupt must no longer have any interest or share in their former home(s).
What other criteria apply?
- Some lenders will offer you a mortgage of more than 3.5 times your income. This is called a mortgage exemption. You cannot avail of a mortgage exemption and the First Home scheme at the same time. It's one or the other. If you get offered an exemption, it's a good idea to chat with a financial advisor about which option to avail of.
- You must have a minimum deposit of 10% of the purchase price.
- You must have mortgage approval from a lender that is participating in the First Home scheme.
- You must borrow the maximum amount a lender is willing to give you. In other words, you can't use the scheme to 'top up' your mortgage with money you would have been able to borrow anyway.
I previously bought a home outside of Ireland. Am I eligible?
The scheme is only open to people who have never bought a home, either inside or outside of Ireland. The only exception is divorcees and people who have been declared bankrupt as outlined above.
Are joint applications possible?
Yes, however both applicants must be first-time buyers.
When do I have to pay back the equity stake?
You are under no obligation to pay back the Government's stake.
However the stake will be recouped when any of the following events occur:
- If you sell your home (the money will be taken from the sale price).
- If your home is no longer your main home or 'principle primary residence', i.e. if you buy a second home, move out and seek to rent out the property.
- If you switch mortgage to a lender which doesn't participate in the scheme.
- When you die (the money will be taken from your estate). For joint applicants, the money is only repayable upon the second death.
What will my mortgage repayments be?
Your repayments will be based on the amount you borrow from a lender. So in the above example, repayments will be based on a mortgage of €175,000. However a charge will eventually apply to the money the Government has stumped up unless you pay it back.
Will I be charged interest or a fee on the money the Government gives me?
No charges or fees will apply for the first five years.
However an 'annual service charge' will apply from year six onwards to cover the maintenance of the scheme.
It’s important to remember that this charge is on top of the amount you owe the Government. The money you pay will not reduce the Government's stake in your home, which will still be repayable at some stage e.g. sale, death.
The service charge is based on the original amount the Government gave you, less any repayments you may have made (so €50,000 based on the above example). If the value of your home rises, your service charge won't increase.
Service charge rate
How do I pay the service charge?
You can pay the service charge by monthly direct debit, electronic funds transfer (EFT), or via a debit card.
You can pay in full each year or make 12 instalments.
What if I can't pay the service charge?
You can pay a reduced amount or else you can defer paying the charge until a later date.
No penalties or interest will apply to any deferred payments. However the amount you owe will continue to add up and must be repaid in full eventually.
How do I repay the Government's stake?
You can repay the Government's stake or equity at any time. You can do so in one go or make partial repayments.
However you're under no obligation to do so and can theoretically live in your home for the rest of your life without paying back the Government's stake.
If you choose to repay part of the equity the Government stumped up, the partial repayment must be at least 5% of the original amount provided. A maximum of two redemption payments can be made over a one-year period.
When making a repayment you will also need to outline where the funds came from e.g. savings, gift, etc.
Importantly, because the equity share is linked to the market value of your property, all redemptions will need an up-to-date property valuation, except within the first six months. Approved valuations will remain valid for 12 months.
If you're paying back the equity share in full, any unpaid service charges must also be paid in full.
Is there an income limit?
No income limit applies to those looking to avail of the scheme.
Whether you earn €50,000 a year or €500,000 a year, you can theoretically apply!
However there are limits on the price of the property you can buy which will vary by each local authority area.
This is likely to be €450,000 for homes in Dublin and €250,000 to €300,000 elsewhere.
Also, as mentioned above, you have to apply for the maximum amount possible with your existing lender. This, coupled with the limit on the price of the home you can buy, means in most cases those on incomes over around €80,000 in rural areas and over around €110,000 in more urban areas won't qualify as your income will be enough to get a sufficient mortgage.
What type of home can I buy?
Similar to the Help-to-Buy scheme, you must buy a new-build home. The scheme doesn’t apply to second-hand homes.
Unlike the Help-to-Buy scheme the First Home scheme does not apply to self-builds either. However this may be reviewed in the future.
And as mentioned above, there is a limit to the price of the home you can buy.
You mention the Help-to-Buy scheme? Can I still use that?
Yes. The Help-to-Buy scheme is an incentive aimed at helping people get the necessary deposit for a new home. You can read more about that scheme here.
And you’re allowed use the First Home scheme in conjunction with the Help-to-Buy scheme if you wish.
However if you avail of the Help-to-Buy scheme the maximum amount of equity you can ask the Government to provide is 20%.
Where can I apply?
At the moment, AIB (and its subsidiaries EBS and Haven), Bank of Ireland, and Permanent TSB will give mortgages to people under the scheme.
But other lenders will likely sign up over the coming weeks and months.
I already have mortgage approval. Can I apply?
Yes. If you've already received mortgage approval and haven't drawn down the funds yet, you can apply for more money under the First Home scheme.
Has this type of scheme been done elsewhere?
Yes, different types of shared equity schemes have been introduced in the UK, Canada and several other countries.
However recent research carried out by the London School of Economics found the scheme in the UK “led to a significant increase in prices for new-build units of roughly 6%” in London while having “no appreciable effect on construction activity”.
In the Welsh border area, where the supply of new homes was more elastic or responsive, the study found the scheme had resulted in a noticeable pick-up in housing supply without inflating prices.
Only time will tell whether the scheme will be viewed as a success here or whether it'll just increase prices even further.
Where can I apply?
For more information and to apply for the scheme, you can head to the new Government website www.firsthomescheme.ie/.