Thursday, 29 September 2016
House Purchase Schemes
Cuirim fáilte roimh an Aire Stáit. This issue relates to the home choice loan scheme. The scheme was established in late 2008 or 2009 and was funded by the Exchequer to the tune of €500 million initially. However, less than €4 million worth of loans have been approved by the home choice loan programme since its inception. As I understand it, only 21 loan approvals have been granted.
There has been much commentary in recent times about the difficulties people are experiencing in obtaining loans to build or purchase homes. Obviously, the curtailment of the Central Bank mortgage lending rules has had an impact as well. The home choice loan scheme is administered through the local authority system, however, and is not subject to the Central Bank lending rules. Under the scheme, the borrower is only required to have 8% in savings up to a maximum threshold of borrowing €285,000. The borrower must have 8% in savings for an application to be deemed eligible. There are other criteria, including having been refused by two other mortgage lending agencies prior to applying for the home choice loan scheme.
In any event, the scheme was set up to support people who want to purchase and live in their own homes. The State should do everything possible to afford people the opportunity to progress to a phase in their lives when they can actually do that. The scheme is essentially defunct - it is not working. A spokesman for Irish mortgage brokers, Mr. Karl Deeter, commented on the scheme at the end of August. He stated not only that the scheme is defunct but also that mortgage brokers do not even know how to get in contact with the home choice loan provider. We need to put our hands up and say the scheme has been a complete and utter failure. However, that does not mean it should not be resurrected. I am of the view that it should be resurrected in light of the need to provide housing and the demand that exists among individuals, especially those in rural areas who may wish to build their own homes on their own land. Those people should be allowed to do that. Often, the only show in town for these people is a mortgage through the lending agencies but they are not available at present despite what may be said to the contrary by those in the lending agencies.
The lending rate of 3.25% is competitive within the market but why is no one applying? The reason is that the scheme is not being promoted, marketed or structured properly. I am keen to hear what the Minister of State has to say. If we are not going to revamp and revitalise the scheme and make it available to everyone, then we would be as well to close the door and say that we have failed. Finally, where has the money initially allocated to the scheme gone?
It is good to be back here again. I thank Senator Ó Domhnaill for raising this issue. It is important to bring clarity. Like many schemes, people do not always know about them until they go looking for them. In our offices people have asked about them in the past and we have pointed them in the right direction. Generally, if someone wants a loan through this mechanism, they will find out about it. However, I understand what Senator Ó Domhnaill is saying in terms of promoting the scheme as well.
The home choice loan is a Government-backed mortgage for first-time buyers introduced in 2009. It was introduced as a temporary loan offering from local authorities. It was designed to facilitate those in creditworthy households wishing to purchase or build new homes or purchase second-hand homes who had been affected by the credit conditions in the mortgage market. As Senator Ó Domhnaill said, it can be used to build a home on land owned by individuals as well.It is available nationwide through mortgage brokers, who are included on a designated panel compiled by the Housing Agency. The loans are made and administered by four lead local authorities on behalf of all local authorities, those being, Dublin City Council, Cork City Council, Kilkenny County Council and Galway County Council. A dedicated website, www.homechoiceloan.ie, gives full details of the scheme.
To support local authorities in operating home choice loans in a consistent and efficient manner, the Housing Agency provides a central service to them. This shared central service processes loan applications, carries out credit checks and issues a recommendation to the local authority on each loan application in accordance with the credit policy. The final decision on loan approval is a matter for the relevant local authority and its credit committee on a case-by-case basis.
The loan is available to first-time buyers who can prove that they have been refused a loan from two financial institutions. It provides up to 92% of the market value of a property purchased to a maximum loan amount of €285,000. The loan is a normal capital and interest bearing mortgage. It is offered at a single, competitive variable interest rate, currently set at 3.25%. Since the home choice loan scheme commenced in 2009, 21 home choice loans have been issued with a total value of more than €3.9 million.
Local authorities can offer another type of product to first-time buyers. In accordance with the Housing (Local Authority Loans) Regulations 2012, local authorities can offer eligible first-time buyers a local authority standard variable rate annuity mortgage loan directly, which offers a rate of 2.55%. Like the home choice loan, this loan type is only available to individuals who have been refused a mortgage loan from two other lenders. The annuity mortgage scheme has a lower loan limit, lower income thresholds and lower interest rates, but a higher loan-to-value, LTV, ratio at 97% compared with the home choice loan ratio of 92%. In addition, the standard annuity mortgage is available and administered directly by local authorities. Almost 1,100 of these loans have been provided by local authorities since 2009 when the current product was introduced, totalling €87 million.
When the home choice loan and standard mortgage loans were introduced, careful attention was given to the terms and conditions that should be applied. This was set against the background of the experience of previous mortgage lending by local authorities, under which the current level of arrears is running at approximately three times that of the private mortgage sector, presenting challenges for the home owners and lending local authorities concerned, and liberal mortgage lending by the private banking sector in the years running up to the economic collapse in 2008.
Therefore, the regulations underpinning the home choice loan and the standard annuity product provided for the first time for the development of a statutory credit policy that would govern any lending under the scheme. Decisions on all loan applications must be made in accordance with this statutory credit policy to ensure lending prudence and to assist authorities across the sector to engage consistently in responsible mortgage lending in the best interests of borrowers and local authorities as lenders.
My ministerial colleague, Deputy Coveney, and I will continue to keep the home choice loan scheme under review and we welcome whatever suggestions Senators might have as to how this product might be better publicised. To some extent, however, what we are seeing in terms of the home choice loan is a mirror image of what is happening in the private housing market where there is a misalignment between house prices and the capacity of first-time borrowers to raise sufficient cash deposits to meet prudent financial rules that are intended to safeguard the borrower into the future.
In this context, the Senator will know that the Government has made its intentions clear in increasing the supply of affordable houses for first-time buyers into the market. The Minister and I are committed to ensuring the ambition of Rebuilding Ireland - an Action Plan for Housing and Homelessness is achieved. The full intention is to work with all stakeholders to make houses more affordable. Announcements in the budget in two weeks' time will help address this issue. It is a question of supply and demand and having a product that people can afford.
I do not have information on the number of applications, but it looks like people are, for whatever reason, not choosing this product. However, there have been more than 1,400 council loans. People are aware of the former but are choosing the latter route. It could have to do with the LTV ratio.
I thank the Minister of State. The figures, which are shocking, were given in a parliamentary reply. I agree with much of what the Minister of State said, but his reply obviously comes from the departmental officials and is not imaginative. The scheme is worth €500 million, but less than 0.8% of that money has been given out in mortgage loans at a time when people are looking for them. The reply referred to the limit, the misalignment and the fact that people must have savings before they can get a mortgage, but the Central Bank's rules set a higher bar at 10% or 20% than the home choice rules do at 8%. Therefore, one would imagine that if people have a difficulty in saving a deposit, their first port of call would be the home choice loan scheme.
The Minister of State put his finger on the issue when he suggested that the scheme had not been advertised or promoted. I call on him to leave his footprint in the Department by revamping the scheme or getting rid of it altogether. There should not be a false impression that these loans are available. A radical revamp of the home choice loan structure and a marketing programme are required. In 12 months' time, I would like to see several hundred applications having been approved under the scheme.
To be clear, imagination works both ways. We will take on board any idea that the Senator has, but I will not force anyone to take out a loan. The loan is available, but people are choosing not to avail of it. They are choosing local authority products instead. It is not that people do not know. The 1,100 people who chose the other mortgage would have been aware of both options. It is not our job to force them to choose this one. I agree that it is our job to advertise and promote the scheme, but brokers also encourage people to take out what are the best products for them. Under this scheme, if one fails to get credit through the normal lending institutions, this is another option. People who look to borrow money are aware of all the options. I would have no problem with putting more effort into promoting the scheme, but please do not tell me that it is our job to make them choose it. It is not.