First Home Scheme Explained
A component of the government’s Housing For All strategy is the First Home scheme. It was introduced in July 2022 and is primarily intended to assist first-time buyers in bridging the difference between the amount they are permitted to borrow (the amount they can borrow) under the mortgage lending guidelines of the Central Bank and the amount required to purchase a property(the amount needed to buy a home). It is also intended to increase the supply of new homes, with the aim that builders would begin building to the specifications of the programme, thereby supplying housing for the “squeezed middle.”
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.
For 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 four times your income or in this case €200,000. So you’re short €25,000.
Under the First Home scheme, the Government will give you €25,000 (or 10% 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.
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 €25,000 or 10% (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 €30,000 (which is 10% 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).
Note: 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 four 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 the money you would have been able to borrow anyway.
I previously bought a home outside of Ireland. Am I eligible?
No. 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 €200,000. 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 €25,000 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 €70,000 in rural areas and over around €100,000 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?
You must buy a new-build home. The scheme doesn’t apply to second-hand homes.
The First Home scheme does not apply to self-builds either. And as mentioned above, there is a limit to the price of the home you can buy.
What is the Help-to-Buy scheme?
The Help-to-Buy scheme is an incentive aimed at helping people get the necessary deposit for a new home. And you’re allowed to 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.
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.
For more information and to apply for the scheme, you can head to the new Government website www.firsthomescheme.ie/
WARNING: We strongly recommend that you seek advice from an independent financial adviser and legal adviser if applying for this product.
WARNING: Property prices can go up and down. As the equity facility is linked to the value of your home, any change in property prices will affect any partial or final redemption amounts. If property prices increase/decrease over time, the percentage equity you have to redeem will remain the same but the € amount will increase/decrease. See example in the case of a price increase below: Customer purchases a property for €250,000, availing of €25,000 from the First Home Scheme (FHS) which means the FHS has a 10% FHS equity share in your home. Sometime in the future, you decide to buy out the FHS equity share. The home is now valued at €350,000. As the FHS equity share is unchanged at 10%, you will now need €35,000 plus any accrued service charges payable, to redeem the FHS equity share in the home.
WARNING: The First Home Scheme is not regulated by the Central Bank of Ireland and the equity product is not governed by the Central Bank and its statutory codes of conduct and/or other regulations to include the Consumer Protection Code. Therefore, no enforceable consumer protections will apply.