Help-to-buy incentive under scrutiny

This past Sunday, current Housing Minister Eoghan Murphy said on RTE’s The Week in Politics that the Help-to-Buy initiative introduced by his predecessor is currently under review. Since its introduction in January under former Finance Minister Michael Noonan and former Housing Minister Simon Coveney, the Help-to-Buy initiative has already received nearly 7,000 applicants and has successfully helped a great percentage of them with the purchase or building of their first home. However, the initiative has recently come under fire for exacerbating the problems it intended to solve, and there is speculation that it may be dissolved.


The purpose of the Help-to-Buy incentive was to encourage first buyers to enter the market by helping applicants with their deposit through the refund of applicants’ income tax and DIRT other the past 4 years. It applies to first time buyers who either purchase or build new residential properties, and allows them to receive 5% of the purchase price of their new home, with an upward limit of €20,000. It is hoped that the incentive would help more people climb the property ladder, thus ramping up demand and encouraging the construction of new properties. The program applies to those who have bought or built a new property since July 19th of 2016, and was scheduled to end on December 31st of 2019.


Murphy’s decision to have the Help-to-Buy incentive reviewed comes as no surprise as more and more voices have been heard criticising the initiative. Instead of encouraging building on the supply side of the market, it has pushed housing prices, especially those on new properties, up. Spokesmen from both Fianna Fail and Sinn Fein have voiced concern over the program, with Fianna Fail spokesman Barry Cowen stating “it has failed miserably and only price people out of the market”. Murphy is concerned that the initiative may be inflationary, and has made it clear that he supports measures that more directly combat the supply issues in the housing market. Wim Verbraeken, CEO of KBC bank Ireland, supports Murphy’s stance, and believes that Help-to-Buy reinforced demand translated, into higher house prices, rather than in an increase ability for first-time buyers to buy their homes.


The Help-to-Buy initiative came at the same time as major relaxations in Central Bank lending rules, allowing first time buyers to borrow as much as 90% of the value of their home. There are currently at least 20 applicants for every new home, causing a bidding war that inflates prices and benefits developers. Together with lax regulations, the Help-to-Buy incentive has contributed to the rise in residential property prices at an annual pace of 10.5% since April.


There is further concern that Eoghan Murphy’s announcement that the Help-to-Buy initiative is under review, and the possibility that it will be discontinued, will cause a mad scramble in the market as first time buyers rush to purchase new homes before the incentive ends. Experts warn that scrapping the Help-to-Buy scheme won’t stall property price growth and would only exacerbate the problem if those who have been planning to buy at a later time choose instead of purchase within the next few months before Murphy’s decision is made. The possibility of scrapping the program could leading to even more inflation of housing prices.


There are also those on the other side of the argument, who believe that ending the Help-to-Buy incentive would be a mistake. Keith Lowe, managing director of DHG, believes the program “has given the confidence back to funds and banks to support developers”. Many more cite the fact that increases in property prices cannot solely be attributed the Help-to-Buy incentive, as most properties are still in the second hand market.  If the program is to be scrapped, it could create a vacuum in the first time buyers’ market. Marian Finnegan, chief economist at Sherry Fitzgerald, says that ” even reviewing it at this stage is premature, [since] the market hasn’t had time to respond to it”.


The original budge of the program is estimated to be €50 million by former Finance Minister Michael Noonan, and already around half has been claimed. Current Minister of Housing Eoghan Murphy stated that his decision would be made after the conclusion of the Department of Finance’s review set to be publish in August. It is likely that a final decision on the Help-to-Buy incentive, whether it is continued, discontinued or extended, will be publicized in the 2018 budged to be announced in October.

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