Deirdre Clune (Cork South Central, Fine Gael)
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Question 6: To ask the Minister for the Environment, Heritage and Local Government the reason the home choice scheme applies only to newly built properties; and if he will make a statement on the matter. [36497/08]

Pat Breen (Clare, Fine Gael)
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Question 13: To ask the Minister for the Environment, Heritage and Local Government his views on whether the home choice scheme will keep housing prices artificially inflated and risks luring first-time buyers into negative equity; and if he will make a statement on the matter. [36488/08]

Bernard Durkan (Kildare North, Fine Gael)
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Question 50: To ask the Minister for the Environment, Heritage and Local Government the action he will take to ensure the recent housing purchase proposals he announced do not lead to the acquisition of negative equity in the housing market by the vulnerable first-time house buyer sector; and if he will make a statement on the matter. [36422/08]

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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I propose to take Questions Nos. 6, 13 and 50 together.

As indicated during the debate on budget 2009, it is important that the ongoing process of correction in the housing market is not artificially interfered with. Given that sentiment in the housing market is heavily dependent on wider sentiment in the economy, the Government's approach is focused on the broader economic fundamentals and on ensuring, ultimately, that the housing market is underpinned by these.

Any housing specific interventions must be targeted in nature and designed to achieve specific outcomes. The announcement in the Budget of the introduction, for a limited period, of the new home choice loan product for certain first-time buyers is fully in line with this policy. It is designed to respond, in a targeted way, to a very specific set of circumstances in the housing market whereby prospective first-time buyers, who would previously have been in a position to access mortgage finance from one of the financial institutions are not currently in a position to do so due to the impacts of the credit crunch. The initiative provides no incentive to enter the housing market; it will merely facilitate certain first-time buyers who have decided to purchase a home at this time.

Home choice will be available to first-time buyers of new houses, subject to a maximum loan of €285,000, depending on income, and a maximum loan to value ratio of 92%. The loan term will be up to 30 years. A minimum income of €40,000 will be required and a detailed credit policy is now being finalised. A single standard variable interest rate product, related to the prevailing rates available from commercial institutions, will apply. All applications will be rigorously assessed having regard to an applicant's ability to pay, credit history and all other aspects of the formal lending policy. An applicant's ability to pay will be also stress-tested to assess ability to repay at current rates and in the event of significant interest rate rises.

The scheme applies to new houses because a significant majority of first-time buyers purchase new houses. The average cost of a new house is almost 14% lower than that of second-hand houses and, as such, it was considered appropriate to target the scheme towards properties which are more affordable for first-time buyers. I do not anticipate this will have an appreciable impact on house prices nor do I think it will do anything to distort the market correction.

Terence Flanagan (Dublin North East, Fine Gael)
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I thank the Minister of State for his reply. The Fine Gael Party is concerned about any type of intervention in the housing market. I accept the Minister of State believes this measure will not result in any intervention in the market.

Our main concern is why this measure applies only to new and not second-hand houses. This, to us, appears to be a bail-out of the property developers. There should be no intervention in the market at a time when it is declining and prices are falling. It is anticipated that prices will drop by a further 20% to 25% next year. We want to ensure homeowners do not end up with negative equity.

Also, the scheme sets a lower ceiling limit of €285,000 in respect of the purchase of a home. We are concerned this too will result in intervention in the market. Perhaps the Minister of State will explain why the scheme is specifically tailored to new homes.

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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The Deputy has asked a number of questions. The new home choice loan cannot be construed in any way to be entering the sub-prime area. This is a targeted approach for first-time buyers and there is no incentive. It aims to deal with people who would have been able to get a loan in the past. It is well known nationally that a person looking for a €300,000 mortgage, with financial institutions looking for 20 % as a deposit, would require €60,000. We all know that is not feasible for young people today. Our target is those who have already decided they want to buy a home, who have the necessary income to make repayments on a mortgage but do not have a €60,000 deposit. We are facilitating a 92% loan to value mortgage.

As to why we did not include second-hand houses, research indicates that over 70% of first-time buyers purchase new houses. Information also indicates a differential of approximately 14% between the purchase of a new and second-hand house. For that reason we have targeted new homes.

Ciarán Lynch (Cork South Central, Labour)
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I thank the Minister of State for his response. I wish to pick up on two or three specific areas, with the key point being the purchase of new or old builds. An important point is that the ceiling of €285,000 is the determining factor, so it does not matter if the mortgage is taken on a new or old build. That is the ceiling. In welcoming this proposal, we should realise that it is an impetus which enables people to buy a home in a particular locality, be it new or old. As there is a ceiling, there is no difference if the house is old or new. The Minister of State's argument does not stand up with regard to the ceiling. Because the scheme is specific to new builds, there is an impression that we are witnessing a bail-out.

Another concern is highlighted by the Minister of State's reference to people who can only get an 80% loan to value mortgage from a bank. Two things are happening at the moment. House prices, although still overly expensive, are falling and it is becoming a buyer's market; and if a bank refuses a loan because it does not believe a person can make the repayments, the council is stepping in, with the implication of some private lending. An exposure to risk is being created.

Given that the Minister has set a ceiling, would it not be more appropriate in the roll-out of the scheme that the ceiling be the determining factor? It should not matter if the scheme allows people to buy new or old builds.

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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I will take the matter of the intervention first. I did not state it would apply to somebody who could not get a loan because he or she could not make the repayments. I put on the record that this applies to people who are in a position to make repayments but do not have the 20% deposit.

This has nothing to do with a bail-out of builders, involvement in the construction industry or a housing market correction. It is a short-term measure to assist people who have already taken a decision to buy a house and who cannot get a mortgage because they not have the deposit. We have targeted those people.

Distinctions have been made in the past regarding new and second-hand homes. There was an issue with the stamp duty which applied to first-time buyers of second-hand homes, and when the Government changed this some time ago some people felt it risked raising prices, which we do not want. We do not want to get into raising the prices of homes or involving people in such a process.

It is a targeted scheme without incentive. It will be there for that category of people for six to 12 months and will be reviewed.

Terence Flanagan (Dublin North East, Fine Gael)
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The scheme's ceiling is seven times a person's salary, which seems grossly irresponsible, particularly in light of what has happened in the sub-prime market in the US. Will the Minister of State give a reassurance that there will not be a repeat of what happened in the past? What changes will be put in place to ensure all mortgages are properly stress-tested and that we return to a more traditional method of providing loans up to two and a half times salary? That is much more prudent. The introduction of this scheme could get us into trouble again.

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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I assure the Deputy and the House there is no question of seven times a salary being advanced. The minimum income is €40,000 and the maximum loan is €285,000. The rule of thumb which will be applied by the four designated local authorities and the central office, backed up by the Affordable Homes Partnership, is that approximately five times salary or less will be advanced. The insurance is that the people involved must be in a position to make repayments that will not go above one third of salary. That is a safety feature and an important part of the loan structure. We are not putting people in a position where they will not be able to make repayments. This loan is targeted at those who have the income to make repayments but who do not have the deposit.

Ciarán Lynch (Cork South Central, Labour)
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I will clarify a few matters with the Minister of State. The minimum earnings to qualify for the home choice scheme are €40,000 and there is no maximum.

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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That is correct.

Ciarán Lynch (Cork South Central, Labour)
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Is there a shelf life for the operation of the scheme? Will it be for the next 12 months or will it go into the foreseeable future with an indefinite end point? As there is no maximum earnings threshold and the maximum purchase price is €285,000, why is the purchase of old builds not being facilitated? It does not make sense. If somebody can purchase a house at that value in a declining market — this will be realised in the next six to 12 months — will the Minister of State not consider allowing old builds in the scheme? If he does not, the clear implication is that this is a developer-driven product.

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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I have explained the position on second-hand homes. The information available to us is that over 70% of young people buy new homes and there is a 14% to 15% differential between the price of a new home and an existing home. What was the first part of the Deputy's question?

Ciarán Lynch (Cork South Central, Labour)
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Is there a shelf life to the scheme?

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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The intended time for the scheme to be in place is from six to 12 months. I am prepared to review it in light of the success of the scheme or otherwise.

Ciarán Lynch (Cork South Central, Labour)
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As the market is declining and should be correcting itself, we are pouring cash into it.

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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I do not accept that. It is a terrible interpretation to put on an opportunity——

Ciarán Lynch (Cork South Central, Labour)
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It is fact.

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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——for couples interested in buying a home.

Ciarán Lynch (Cork South Central, Labour)
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It is an opportunity. That is right.

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
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I reiterate there is no incentive in this home choice loan. It is offered at a variable rate in the same way as a loan from any other financial institution. The only difference is that it is targeted at a group of people and will have a loan to value of 92%. There is no incentive and no intervention by Government or my Department in the construction industry. If it has a plus, we will welcome that also.