Rebuilding Ireland Home Loan is a new initiative that was launched by the government in early 2018. The idea is that people who meet the criteria get to borrow money from the government to buy or build their first home.
There are three major advantages to the loans and they are that the interest rate on the loan is very competitive, you can fix for the full term of the loan and the criteria means you will get significantly more money from the government than you would in an ordinary bank.
The rate offered on the loan is dependent on whether you go fixed or variable and over what period of time. The variable rate is slightly more expensive than the two fixed rates offered. The rates on offer currently are:
- 2% fixed for up to 25 years (APR 2.02%)*
- 2.25% fixed for up to 30 years (APR 2.27%)*
- 2.30% variable (subject to fluctuation) for up to 30 years (APR 2.32%)*`
* Rates are subject to change. Mortgage rates are set on the date of drawdown of your loan.
The difference between fixed and variable has got to do with how much you pay each month. Variable means the government could technically move the rate up or down every month if they wanted to. The fixed rate means that the repayment will remain the same the whole way through your mortgage.
The other major advantage is the amount of money you can borrow. For example assuming you have no other loans and you earn the average wage in Ireland of €36,700 per annum, an ordinary bank who is adhering to central bank rules would be able to give you a mortgage of €128,450.
Under a rebuilding Ireland loan you would be able to get €148,304.
A couple who between them earn a total of €63,000 would be able to borrow just under €288,000 (in certain counties) from rebuilding Ireland versus €220,500 from a high street bank.
As you can imagine there are lots of terms and conditions around any loan, all the standard ones are there but there are some interesting ones for this loan.
For example, if you are buying in Cork, Dublin, Galway, Kildare, Louth, Meath or Wicklow the maximum loan you can get is 90% of €320,000.
But if you are buying outside of these counties the max loan is 90% of a purchase price of €250,000.
The county councils have also said that some other issues may be considered when underwirting applications, for example if you have children they want to ensure you are not moving too far away from childcare. The concern here being will you be able to afford childcare if you loose family support.
But of most interest is the fact that the government have blatantly ignored the central bank rules when it comes to mortgages.
Banks are not allowed under central bank rules to give you a mortgage of more than 3.5 times your annual income. The banks can make exceptions in a % of cases per year, but this is limited.
Government, with this scheme, have ignored the central bank rules. For example, in our earlier example of the couple they will be borrowing over 4.5 times their salary.
I suspect the government will argue their loan is fixed for the full term and their rates are very low therefore the repayments are both constant and more affordable than high street banks. I would agree with them.
However, what I am surprised at is that none of the banks have now moved to offer 25/30-year fixed rate loans in order to avail of the same ability to “break” the rules.
This could be because either they tried and were told by the central bank they are not allowed or alternatively because they don’t see this loan as a threat to their business.
They may not view this scheme as a threat yet, a quick google search will tell you that many people are frustrated at not being able to drawdown the loans, banks could just be saying people can’t get the money.
But also, this is round one of this scheme and only about 1000 people will actually be able to get loans in this phase of the scheme, overall 1000 people is not a major dent in the mortgage market. For example, there were over 10,000 loans drawn down in Q4 2017 over half of which were first time buyers.
Phase two, if it ever happens may be on different terms. I would bet if it is on different terms, those terms won’t be better than the current scheme.
Overall this is an interesting scheme and if they can deliver it is certainly a very attractive option for any first-time buyer if they qualify. In fact, if I had the option to switch my mortgage to it today I would be very tempted.
Of course, there are rules, to be eligible for a Rebuilding Ireland Home Loan you must:
- be a first-time buyer
- be aged between 18 and 70 years
- be in continuous employment for a minimum of two years, as a primary applicant or be in continuous employment for a minimum of one year, as a secondary applicant
- have an annual gross income of not more than €50,000 as a single applicant or not more than €75,000 combined as joint applicants
- submit two years certified accounts if self-employed
- provide evidence of insufficient offers of finance from two banks or building societies
- not be a current or previous owner of residential property in or outside the Republic of Ireland
- occupy the property as your normal place of residence
- purchase or self-build a property situated in the Republic of Ireland of no more than of 175 square metres (gross internal floor area)
- purchase or self-build a property which does not exceed the maximum market value applicable for the county in which it is located
- consent to an Irish Credit Bureau check