Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I wish to ask the Minister about the shared equity scheme. He frequently cites the British shared equity loan scheme, and I assume that his proposed scheme is similar to that introduced by the Tories. First, I am surprised that the Minister for Finance has given the green light to the scheme because it is a demand-side response to what is a supply-side problem, and that is patently obvious to anybody. As an economic policy, it is completely wrong-headed.

Second, the scheme, if rolled out, could have an immediate impact on the share prices of developers in this State. A study by Geoff Meeks of Cambridge University found that in the three years before the shared equity scheme was rolled out in Britain the share price of leading developers increased in line with share prices of the FTSE 350 but that in the four years after the shared equity scheme was introduced, share prices on the FTSE 350 rose by 47% while the share prices of leading developers rose by 230%. Shareholders, managers and CEOs, therefore, prospered under the shared equity scheme in Britain, and the impact here is likely to be no different. The Minister has already heard from the most senior civil servant in the Department of Public Expenditure and Reform that his proposal is about lining the pockets of developers, but sure are those not the spots Fianna Fáil has always worn?

My immediate concern is about the impact this scheme will have on the borrowers and on the market. In 2019, the British National Audit Office published a progress report on the scheme. It found that 63% of buyers could have bought a property without the scheme. Under the Minister's intended scheme, it is understood that the taxpayer would take a 30% equity stake in all new builds purchased. To be clear, this is the taxpayer investing in the property market. As Gareth Davies, head of the British National Audit Office, commented, "The scheme has ... exposed the government [and the taxpayer] to significant ... risk if property values fall." The risks extend to borrowers. The same progress report found that buyers who want to sell their property soon after they purchase it might find they are in negative equity. This concern was raised also in February 2020 by the Financial Conduct Authority, FCA, the British equivalent of the Central Bank. The FCA warned that borrowers who had availed of the shared equity loan scheme were more likely to face negative equity if property prices fell.

My understanding, which the Minister can clarify, is that under his proposed scheme, first-time buyers will require a deposit of 10% of the value of the property, that a special purpose vehicle, SPV, will be established taking 30% equity for the State and that the buyer will then take the mortgage worth 60% of the value of the property. From year six the property will involve interest-only payments on the equity, with the equity to be paid on the sale of the property or at the end of the mortgage term. This could mean buyers taking out an overall debt equivalent of more than five times their income, circumventing the Central Bank's mortgage measures and loan-to-income limits. These measures were put in place to protect borrowers and to avoid what the Central Bank describes as a credit-house price spiral. By circumventing these rules, the scheme risks such a spiral.

I hope the Minister will be able to clarify some of the matters before us. Perhaps he will also respond to what Robert Watt has claimed, that is, that the Minister's scheme is about filling or lining the pockets of developers. First, is he setting up an SPV with any retail banks to manage this equity scheme? Second, what rate of interest will be charged on this equity? Will it vary annually and, if so, how? Third, can he guarantee that the taxpayer will fully recoup the equity invested? Fourth, will a first-time buyer under the scheme be able to take out combined loans worth more than five times his or her salary?

Fifth, will the Department be able to tell a first-time buyer who uses the scheme the full cost of his or her repayments for the full term?

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