LAST UPDATE | 25 Nov 2021

THE CENTRAL BANK has cleared the way for banks to take part in the Government’s proposed shared equity scheme for first-time buyers – but warned that, in the short term, the plan could increase house prices.

In it’s annual report published today, the Central Bank has also left its mortgage rules unchanged, meaning there will be no change in the mortgage loan to value limits and borrowers’ income limits.

The shared equity scheme is one of the key pillars in the government’s Housing for All plan. 

If you’re a first-time buyer who can’t afford a new-build up to and including certain capped prices, then you can apply for the State to take up to 20% equity (in essence, a stake) in the home.

The State will come onboard and take a stake of an average of 20% in any new build home subject to regional price caps while a mortgage is taken out on the rest. The equity stake is free for the first five years followed by a cheap interest rate thereafter.

The bank said in its report today that operational changes are being made now to allow banks to take part in the ‘First Home’ shared equity scheme, stating that banks will be allowed bring forward above-limit loans approved from one calendar year to the next.

However, the report also states “in the short-run, the “First Home” shared equity scheme operates by shifting the demand for house purchases and, so – in a supply-constrained market – has the potential to increase pricing pressures”.

Speaking in the Dáil today, Tánaiste Leo Varadkar said he welcomed the decision today to allow lenders to take part on the Shared Equity scheme, saying it will be a benefit to first-time buyers. 

Social Democrats Housing Spokesperson Cian O’Callaghan said this “warning is a shot across the government’s bow – and they would be foolish to ignore it”.

“The property market is already red hot, with house prices having grown by more than 12pc in the past year alone. The shared equity scheme will throw further fuel on the fire of an overheated market.
 
“The Central Bank also note there are other factors, aside from the shared equity scheme, which could lead to property price inflation. It states that higher construction costs are “likely to feed through to house price inflation”. Given this existing risk, why is the government determined to add another inflationary pressure into the mix?” asked O’Callaghan.

Today’s report is not the final word on Ireland’s mortgage rules – a wider review of the rules is already underway and is due to open to public consultation next month.

Central Bank Gabriel Governor Makhlouf said inflation is “now running well ahead of many developed economy central bank targets.”

He explained that “while our baseline scenario is that these inflationary pressures will gradually fade, we must also acknowledge the uncertainty involved and the prospect of the risks that would ultimately be associated with a more prolonged inflationary period”.

On resilience, Governor Makhlouf said the impact of the pandemic-related shock on the financial position of lenders and borrowers has started to dissipate. He explained “the true financial health of the most affected businesses will only become apparent over coming months and years, as policy support and forbearance are gradually removed.

His comments come after another report published today finds that the proportion of first-time home buyers aged 30 or younger has more than halved between 2004 and 2020, a new report has said. 

The Mortgage Market Profile report published today by the Banking & Payments Federation Ireland (BPFI) said the average age of first-time buyers is continuing to increase. 

In 2004, 60% of first-time buyers were aged 30 or under. This reduced to 27% by 2020.

The report also said that around one-third of mover purchasers were no older than 35 in 2012. By 2020, this figure had reduced to 17%. 

Chief executive of the BPFI, Brian Hayes, said the report shows a “strong and full recovery” in the mortgage market in the first half of this year compared to 2020.

“However, the impact of Covid-19 restrictions continues to be felt on home loans for new properties, with existing houses accounting for close to 50% of the first time buyer market, who in themselves account for a large majority of the overall mortgage market,” Hayes said in a statement. 

The report also showed that the median monthly mortgage repayment for first-time buyers was €841. This varied across counties – Dublin has the highest median repayment of €1,107 followed by €1,054 in Wicklow. 

Mortgage drawdowns increased by 23% year-on-year in the first half of 2021 to more than 14,00. First-time buyers accounted for more than two-thirds of drawdowns during this period. 

With reporting by Christina Finn