Housing minister Darragh O'Brien has launched First Home, a new shared equity scheme for first-time buyers that is expected to fund the purchase of up to 8,000 homes over four years.

Under the scheme, part of the purchase price will be provided to buyers to add to their deposit and mortgage, with the state paying up to 30% of the cost of the new home in return for an equivalent stake in the property.

The First Home scheme application process runs in parallel with the mortgage application process i.e. mortgage applications should continue to be made separately through participating lenders.

The scheme is available initially to FTBs and other qualifying homebuyers who are taking out mortgages from AIB (including its EBS and Haven Mortgages businesses), Bank of Ireland or Permanent TSB. Other mortgage providers may join the scheme in the coming months.

Applicants must:

In Association with

•     have Mortgage Approval with a participating lender

•     borrow the maximum mortgage amount available from one of the participating lenders (up to 3.5 times income)

•     not be availing of a Macro Prudential Exception with a participating lender

•     have a minimum deposit of 10% of the property purchase price

Here's how it will work, courtesy of Auctioneera.

Why is the First Home Scheme being launched?

Central Bank macroprudential rules requires first-time buyers to save at least a cash deposit equivalent to 10% of the value of the home they want to buy, while mortgage borrowing is capped at 3.5x their combined gross annual income.

Those who cannot afford a mortgage on a home within the rules can take advantage of the Help to Buy scheme, which offers the deposit on a new-build property worth up to €300,000 in the form of a tax rebate.

The Local Authority Home Loan Scheme, which replaced the Rebuilding Ireland scheme this year, offers a 90% loan to lower earners through local authorities on properties worth up to €320,000 in the Dublin commuter belt, Louth, Galway and Cork and €250,000 everywhere else.

Under the new scheme, the government will offer up to 30% of the cost in exchange for an equivalent ownership stake in new-built homes in private developments.

What is an equity loan?

The government lends the successful applicant the money and charges interest on the loan, in addition to taking an ownership stake, as opposed to a bank, which takes a charge on the property as a security but does not take a stake in the home.

If you sell a property that has a mortgage, you pay back the outstanding loan, but if you sell a property that has an equity loan, the lender, in this case the state, is entitled to their percentage of the sales price and the profit if the value of the home has appreciated, unlike a bank.

Who is eligible to apply?

The scheme is available to all first-time buyers of new-build properties. 

Does the scheme apply to second-hand properties? 

Unfortunately not, only new-build properties are eligible. 

How much can you borrow? 

The maximum that you can borrow is 30% of the price of the property. If you participate in the Help to Buy scheme for the property you’re purchasing, the maximum that you can borrow as part of the First Home Scheme is 20% of the property value.

What if you can afford the property without the equity loan?

If your total mortgage approval plus deposit are sufficient to purchase the property you want to buy, you cannot avail of the scheme. It is designed to make up a funding shortfall when a deposit plus mortgage approval is less than the purchase price of the property.

Are there limits on the price of the property you can purchase while availing of the scheme?

• €450,000 for houses and €500,000 for apartments in Dublin city and Dún Laoghaire;
• €400,000 for all properties in Cork city, Fingal, Galway city, south Dublin, and Wicklow;
• €350,000 in Co Cork, Limerick, Kildare, and Meath;
• €300,000 in Clare, Westmeath, and Wexford;
• €275,000 in Carlow and Louth;
• €250,000 in Kerry, Kilkenny, Laois, Waterford and Roscommon;
• €225,000 in Cavan, Donegal, Leitrim, Longford, Mayo, Monaghan, Sligo and Tipperary.

Minister O'Brien said these ceilings will be reviewed within six months, and at regular intervals after that, to ensure that they get the balance right between preventing market distortion and ensuring that the scheme is effective in helping first-time buyers who need it.

Price ceilings for each local authority area are available on the First Home Scheme website.

Do you have to pay interest and capital repayments on the equity loan?

During years 0-5, no interest is payable on the loan. From years six to 15, an interest rate, described as a service charge, of 1.75% will apply. From years 16 to 29 an interest rate of 2.15% will apply. Unlike a typical mortgage however, the repayments are interest only, i.e no capital repayments are required. 

Home owners will have the option of paying this charge each year or deferring the payment until the property is sold.

Can you buy out the government’s stake in your home? 

You can buy out the state's percentage for cash at any stage. If you choose not to buy out the government’s equity in your property, you will be liable to pay the associated interest charges each month. 

A maximum of two partial buyouts are allowed per year. Partial or full buyouts are based on the market value of the property at the time the buyout takes place.

Can you sell the property if you avail of the scheme? 

Yes you can, but the government will be entitled to their percentage of the proceeds. If the government owns 17% of the property, 17% of the proceeds of the sale will go to the government. 

What if you still can’t afford the property even with the scheme? 

If your deposit plus your mortgage approval plus 30% of the purchase price come to less than the total purchase price, then unfortunately you currently can’t afford this property. 

Can you avail of Help to Buy as well as the shared equity loan? 

Yes, so long as you are a first-time buyer who is eligible for the Help to Buy Scheme, you can avail of it in conjunction with the scheme, but the maximum you can borrow is reduced to 20% of the purchase price.  

Example

First-Time Buyers’ income   €70,000

Maximum borrowing (3.5x income)    €245,000

Property purchase price       €350,000

Deposit       €35,000 (10pc of purchase price – Help to Buy can be used)

Maximum that First-Time Buyers can pay without support      €280,000 (€245,000 plus €35,000)

Affordability gap     €70,000 (€350,000 minus €280,000)

Outcome     First Home Scheme can provide €70,000 in return for a 20pc equity stake in the property.

Exemptions

A number of exemptions have been introduced which mean applicants may also be eligible despite previously purchasing or building a property in Ireland if:

•     they did so with a spouse, civil partner, or partner, and that relationship has ended. The applicant must not retain a beneficial interest in the previous property, or

•     they have sold or divested of that property as part of a personal insolvency or bankruptcy arrangement, or other legal process as a consequence of insolvency

(Pic: Getty Images)