First Home (Shared Equity) Scheme  – what we know?

Ireland’s First Home Scheme

The scheme is designed to support home ownership by bridging the gap between what an eligible first time buyer can secure as mortgage approval under Central Bank loan to income rules plus their deposit versus the purchase price of the new build property they are hoping to purchase. The first time buyer must also have a 10% deposit (which can include the help to buy scheme). Limits on percentage of equity under the scheme and location-based price ceilings will apply.

Key items

• First time buyers* who are seeking to buy a new build home (house or apartment) but cannot secure the full mortgage amount required
• First time buyers must have secured mortgage approval with a participating mortgage lender at the maximum available up to 3.5 times loan to income (LTI) rules
• Location-based price ceilings will apply and will reflect the median price that first-time buyers pay for a new home in the area. Price ceilings range from €250-450,k depending on location. Maximum property ceilings
• Developer must also participate in the scheme.
• The scheme will pay up to 30% of the cost of a new home in return for a 30% equity share in your home (20% max if using in conjunction with the help to buy scheme)

*Note consideration will be given to designated groups such as those who are divorced and who no longer retain an interest in a previously owned family home

How will the scheme work?

• The scheme will pay up to 30% of the cost of a new home in return for an equity share in your home (20% max if using in conjunction with help to buy scheme)

Example

• House price = €320,000
• Household Income = €70,000
• Maximum mortgage available loan to income rules = €245,000
• Deposit required is €32,000 (This may include up to €30,000 from the Help to Buy scheme)
• Issue is a financial gap of €43,000
• First Home Scheme will provide equity of €43,000 to bridge the gap and the equity held will be 13.44%

Can you buy back the equity stake held under the First Home Scheme?

If you want, you can buy back the stake at any time, but there is no obligation to do so unless –

1. the house is being sold
2. is no longer a Principal Private Residence
3. following death
4. the customer re-mortgages with a lender who is not a member of the scheme

• The equity can be partially or fully redeemed by the customer at any time, based on the percentage of equity held by the first home scheme, calculated on the value of the property at time of redemption.
• At time of full or partial redemption a valuation will be required. A valuation will be valid for 12 months and two repayments can be made every 12 months. Minimum redemption is 5% of the original equity amount (except for the last repayment).

The equity share provided by the First Home Scheme on day 1 will be a percentage of the property value. Example – home €200,000, customer is provided €20,k, equity share is 10%

• After a number of years and assuming no redemptions in the interim if the home is now worth €300,k. The equity share is still 10%, meaning the value of the equity the First Home Scheme is owed is now €30,k.
• Conversely if the house drops in value to say €100,k the amount owed to the First Home Scheme is now €10,k.

The equity is linked directly to the value of the home. If redemptions to equity are made then the equity amount owed reduces.

Will interest be charged on the funds received?

• There will be no interest charged on the funds from shared equity scheme
• However, a service charge will apply to the equity stake from Year 6 onwards and will apply until the full equity is redeemed. You can choose to pay this or roll up as part of the equity.
• The following service charge rates will apply to the equity share:
  • 0-5 years: 0%
  • 6-15 years: 1.75%
  • 16-29 years: 2.15%
  • 30+ years: 2.85%
• The service charge is based on simple interest percentage of the initial capital deployed and reduces as capital is redeemed.
• The scheme is not regulated by the Central Bank as it is considered an equity product.

What do you need to do to apply?

See post – How to apply for the First Home Scheme?

For full information and to apply please see First Home (firsthomescheme.ie)