The Government’s First Home Affordable Purchase Shared Equity Scheme looks set to be enacted into legislation soon. The scheme is available to all first time buyers of new-build properties.
This scheme is for those would-be buyers who are paying high rents but would prefer to be homeowners. Many buyers are locked out of the property market as the rules require them to put up a 10% cash deposit and also limit their total mortgage borrowings to 3.5 times salary.
The Help to Buy Scheme offers buyers up to 10% of the value of a property back in a tax rebate up to a maximum of €30,000. So a purchaser buying a new-build property for €300,000 can fund the 10% deposit through a tax rebate, assuming they have paid this amount in tax.
However, if after multiplying their salary (or joint salaries for a couple) by 3.5, they still can’t afford a property, the renter is stuck. Enter the First Home Affordable Purchase Shared Equity Scheme. The Government will make up the shortfall, up to a maximum of 30% of the total price of the property in an equity loan.
The maximum that you can borrow is 30% of the price of the property. It should be noted that if you participate in the Help to Buy scheme for the property you’re purchasing that the maximum that you can borrow as part of the First Home Affordable Purchase Shared Equity Scheme is 20% of the price of the property.
What is an Equity Loan?
The Government lends you the money and charges interest on this loan. In addition, the Government takes an ownership stake in your property equal to the percentage of the property’s value that they have contributed. So if the Government has put up 10% of the money via an equity loan, they own 10% of the property. This differs from a mortgage whereby the bank puts up the money and takes a charge on the property as a security but does not take an ownership stake in the property. If you sell a property that has a mortgage, you pay back the outstanding mortgage. If you sell a property that has an equity loan, the lender is entitled to their percentage of the sales price; if the price has gone up, you will pay back more than the initial loan i.e. the lender shares in the capital appreciation of the property. A bank lending a mortgage does not.
During years 0-5, no interest is payable on the loan. From years six to 15, an interest rate of 1.75% will apply. From years 16 to 29 an interest rate of 2.14% will apply. Unlike a typical mortgage however, the repayments are interest only i.e. no capital repayments are required.
Can I Avail of the Help to Buy Scheme in Addition to a 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 first home affordable purchase shared equity scheme but the maximum you can borrow is reduced to 20% of the purchase price. So for example, if you were purchasing a property in Dublin for €400k with a couples salary of €70k, you could receive the Help to Buy rebate of €30k towards the deposit of the property meaning that you would need to have €45k in savings.
A lending institution would lend €245k (3.5 times salary) meaning you are €80k short. This is where the First Home Affordable Purchase Shared Equity Scheme comes in. The State would provide a €80k equity loan in return for a 20% equity stake in the property. So a couple earning €70k with savings of €45k could buy a property worth €400k. They would only technically own 80% of the property but would have full, unrestricted access to 100% of the property.