Third of recipients of Help to Buy scheme did not need it to meet 10% deposit requirement
Cost 2021, Was Which Was 47% By 7m, Above The Claims Help The Picture Of End Cost To File Estimates Estimated Of €559 Buy
A third of recipients of the Government’s Help to Buy scheme did not need it to meet the 10% deposit requirement to buy their first home and this may have helped to fuel property price inflation, a new report has found.
The Oireachtas Parliamentary Budget Office (PBO) conducted an analysis of the scheme from its inception in 2016 to the end of 2021, and said its analysis “suggests that the scheme is poorly targeted towards its stated aim of providing support to first-time buyers in meeting their deposit requirement”.
Furthermore, the majority (63%) of Help to Buy claims in 2021 were for properties valued above the national average price. “Increasing purchasing power for households, while housing supply is constrained, will very likely lead to higher house prices,” the PBO said.
“Such rises in house prices are likely in turn to exacerbate affordability problems down the line. This is of concern in areas where the HTB claims are highest, most notably Dublin, the Dublin commuter belt and Cork.”
According to CSO stats, house prices in Ireland have risen significantly in recent years with annual inflation at 14.8%. Since house prices reached their lowest level in 2013, the cost of buying a home has more than doubled.
The number of approved claims since the introduction of the scheme to the end of 2021 was 30,963, with 2021 seeing the highest amount of claims in a single year. Cork, Dublin, and the capital’s surrounding commuter counties account for 70% of all Help to Buy claims.
Successful applicants can avail of the scheme to purchase a new property or a self-build, with a maximum amount of €30,000 available. The primary stated aim of the scheme was to make it easier for first-time buyers to raise the deposit needed under Central Bank rules.
By the end of 2021, the estimated cost of Help to Buy claims was €559.7m, which was 47% above cost estimates. The PBO said this overrun was exacerbated by the widening of the scheme in 2020, but nevertheless said it “raises concerns on the methodology used to forecast the costs of the scheme”.
It calculated that 33% of recipients already had the 10% deposit needed for a home by examining the loan-to-value ratio on mortgages.
The PBO said: “The chart shows that upon receiving the HTB assistance, 33% of HTB recipients had an LTV of 80% or less. This means that a third of recipients did not need HTB to meet the 10% requirement and could instead use the scheme to create larger deposits.
While saying that the Help to Buy scheme may have played a role in surging property prices in Ireland, the PBO pointed out that’s not the only factor.
“In considering the impact of the HTB incentive on prices, it should be noted that house price inflation for properties which qualify for HTB is influenced by overall build cost inflation and other supply/demand factors and not just by the HTB incentive,” it said.
“HTB should not be viewed as the sole contributor to property price inflation but should be considered a partial cause of it.”
Although still active, the Help to Buy scheme is set to be independently reviewed and is currently due to be wound up at the end of the year. However, it has already been extended from previous endpoints on a number of occasions and may be extended further.