Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

Question 222: To ask the Minister for the Environment, Heritage and Local Government if his attention has been drawn to media comments to the effect that the home choice loan scheme could potentially require the State to become a lender to excessively risky home buyers; the steps he envisages taking to ensure that this does not become the case; the impact on commercial lending in certain areas; his views on a more modest maximum earnings multiple for loan approvals through this scheme than has prevailed in the market in recent years; and if he will make a statement on the matter. [38820/08]

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

Question 223: To ask the Minister for the Environment, Heritage and Local Government the rationale for confining the home choice loan scheme purely to newly built homes; and if he will make a statement on the matter. [38843/08]

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

Question 224: To ask the Minister for the Environment, Heritage and Local Government if, with respect to the home choice loan scheme and its expected borrower profile, he envisages a bad debt provision which is superior to that in the standard mortgage market; if so, if the cost of this provision will be passed on to borrowers; and if he will make a statement on the matter. [38822/08]

Michael Finneran (Roscommon-South Leitrim, Fianna Fail)
Link to this: Individually | In context

I propose to take Questions Nos. 222 to 224, inclusive, 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 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.

The scheme is designed to respond, in a targeted way, to a very specific set of circumstances in the housing market whereby prospective middle income 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. This initiative provides no financial incentive to enter the housing market for those who believe that the process of correction has yet to conclude; it will merely facilitate certain first-time buyers who have themselves decided to purchase a home at this time. The interest rate charged to borrowers will be similar to the prevailing rates in the market.

The scheme applies to new houses and self builds because a significant majority of first time buyers purchase new houses. The average new house price is almost 14% lower than the average second hand house price, so it was considered appropriate to target the scheme towards properties which are more affordable for first time buyers. Home Choice will be available to first time buyers of new houses and self builds, 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 and a minimum income of €40,000 for single applicants and €50,000 for joint applicants will be required.

Contrary to some inaccurate media reporting, there is no suggestion that applicants on the minimum eligible income would be permitted to borrow the maximum amount allowed under the scheme. A detailed, robust and prudent credit policy governing all aspects of loan decisions, including, inter alia, requirements in relation to the financial standing of applicants, proportion of net monthly income required to make loan repayments, and employment conditions, is now being finalised. An applicant's ability to pay will also be stress-tested to assess their ability to repay at current rates and in the event of significant interest rate rises.

Given the assessment criteria that will be in place, I do not anticipate that the scheme will have any significant impact on the loan book risk profiles of the participating housing authorities. It is also important to bear in mind that local authorities have traditionally been providing loan finance to people of a lower income profile that those at whom the Home Choice Loan is targeted.