High annual maintenance fees, a “discount” that is repayable after 40 years – and may cost more by then – a complicated pricing process and market prices that may not always align with local trends.
Yes, affordable housing schemes may look attractive at first glance, open as they are to those earning above-average incomes, and offering a sale price of as much as 40 per cent off market. However, as the Government ramps up the supply of such homes, putative buyers should be aware of all that the scheme entails before making a purchase.
While there are good points to the developments that continue to come on stream, the affordability aspect may be overstated.
The good
Under its new action plan on housing announced last week, the Government said it will deliver as many as 15,000 affordable homes a year, as it ramps up the role of the Land Development Agency (LDA). This figure includes those supported by the Government’s shared-equity scheme.
It should mean a welcome boost in supply for those looking for a home to buy. With house prices – never mind rents – continuing to reach new heights, the Government is increasingly stepping in to offer people other options to market rates.
The Starter Home Purchase Scheme will see increased affordable housing delivered by local authorities and the LDA.
The scheme is not just for first-time buyers or those who qualify under Home Start. While this will give you eligibility, if you already own your home, you might still qualify if this home is no longer suited to your family. Putative affordable-home buyers can also seek a Help to Buy grant to help get their deposit together.
Dublin City Council is set to offer more than 1,400 such homes as part of its housing programme. This includes 172 at Cherry Orchard (2028); 168 in Parkwest (2029); 100 in Poolbeg (TBC); and 101 at Sillogue in Ballymun (2027).
In Fingal, phase two of Balmoston in Donabate has just launched its application process, while in Dún Laoghaire-Rathdown, Shanghanagh Castle in Shankill, was launched earlier this year.
In Cork, phase two of the Glenbride scheme in Kilnap is due to launch before year-end, and in Kilkenny, applications are now open at Churchview in Kilmacow, where a three-bedroom end terrace has a minimum price of €248,475.
Where once it might have been difficult to keep abreast of all these developments, there is now a central portal to track new offerings: affordablehomes.ie
Like the First Home scheme, the Starter Home Purchase Scheme is aimed at, as Dún Laoghaire-Rathdown council tells interested applicants, those “seeking to purchase a newly built home but need to bridge the gap between their mortgage and deposit to cover the full price of the home”.
And, like the other scheme, it involves an equity stake being taken, this time by your local council, of between 5 and 40 per cent.
This stake is considered to be a discount on the market price, while the affordable purchase price is calculated based on the purchasing power of eligible applicants. The price will vary for each purchaser as it is based on their income, savings and purchasing power.
As noted by Dublin City Council: “If Dublin City Council takes a 20 per cent equity share, the purchaser will benefit from a 20 per cent discount on the open-market price.”
This affordable dwelling contribution, or equity share, is a fixed percentage in your new home.
At first glance then, the affordable homebuyer is benefiting from a discount on market price.
Consider the upcoming scheme at Montpelier, Dublin 7, which will open for applications later this month.
Built in partnership with Bartra and Tuath Housing, the scheme is being delivered in phases and will include new parks, community spaces, shops, a creche, a pharmacy and a GP practice.
On the old O’Devaney Gardens site, 99 homes (26 one-bed; 62 two-bed; and 11 three-bed) will open for applications from November 25th, as part of the 1,046 home scheme, with the residents due to move in next July.
Rather than a fixed price, the new homes are being offered at a range of prices. One-bedroom units will cost between €248,000 and €332,000; two-beds between €320,000 and €414,000; and three-bedroom houses between €378,000 and €473,000.
According to Dublin City Council, these prices represent an average 25 per cent discount to open-market value.
And the income limits are more generous than many might expect.
If you want a one-bed apartment at Montpelier, your gross income (single or joint) should be between €56,000 and€75,000. For a two-bed, your income can be as high as €93,000, and for a three-bed house, it could be between €85,000 and€106,000.
According to Dublin City Council, if your income is below €56,000, you might still qualify if you have additional savings.
At Balmoston in Donabate, north Co Dublin, you can earn as much as €103,669 and still qualify to apply to buy a three-bedroom mid-terrace house.
When working out your income, you may be able to include regular overtime in your assessment, but a bonus is restricted to a maximum of 10 per cent of basic income, and commission to 30 per cent. Welfare payments such as child benefit and carer’s benefit aren’t included.
But this won’t tell you how much you’ll actually pay – this comes down to your so-called “purchasing power”. This is a figure based on your mortgage capacity, deposit and relevant savings and it must not exceed 95 per cent of the open-market value of the property.
Let’s say you earn €60,000 and want to buy a one-bed in Montpelier – Dublin City Council says it will take an equity stake of 5 to 27 per cent. Based on a multiple of four, your mortgage capacity will be €240,000.
Then, if the affordable sale price is €270,000, you will need a deposit of €27,000. If you have significant savings (ie in excess of your deposit plus €30,000), these will also be added – note here that these savings may disqualify you from the scheme.
So then, in the above example, our buyer’s purchasing power is €275,000 (including savings)- which is just 76.3 per cent of the open-market value of €360,000, which means this buyer qualifies. The council would take a stake of 23.7 per cent, or €85,000.
But someone with a higher income, and therefore higher purchasing power, might end up with a “discount” of just 10 per cent.
The higher your purchasing power then, the higher the price you’ll have to pay, and the lower the equity stake the council will take.
The bad
First up, the term “affordable” is a Government one – and isn’t one that many people might necessarily attribute to a €460,000 two-bed apartment in the outer reaches of south Dublin.
While the scheme proclaims to offer a “discount” on market rates, it is not really any such thing – it’s simply a further loan that must be repaid at some point. Yes, you can live in the property for perpetuity and not pay it back – but it must be repaid at some point.
And if your read the fine print, you’ll find that the Housing Authority “can elect to require the repayment of the equity share” after 40 years if you haven’t paid it down by then.
So, this means you could find yourself having to pay up the “discount” you received when in your 30s when you are in your 70s. Not only that, but remember that this equity stake is a percentage of the value of the property.
As Dublin City Council states, the amount you repay “will depend on the future open-market value of the home and the timing of the repayment(s)”.
So, if a 20 per cent stake is worth €80,000 on a €400,000 property today, it might be worth €120,000 on a €600,000 property in 40 years time. And that’s what you’ll have to repay.
Secondly, the “discount” is based on a market price that is set by the local authority. But, as these properties are not being sold in the open market, is there a risk that local councils might be overstating the figure?
A quick look on Daft.ie for example, shows two-bed apartments for sale in the Shankill area in the price range of €385,000-€500,000. Dún Laoghaire-Rathdown, meanwhile, has put a market rate of €460,000 on its two-bed units in Shanganagh Castle.
Thirdly, it’s a confusing scheme, as the specific percentage equity available differs from development to development; the affordable purchase price paid is dependent on the applicant’s “purchasing power”; and the relevant income limits can differ from scheme to scheme, depending on the cost and location of the homes.
This means that if you are a higher earner, the discount you secure might be minimal. At Montepelier, for example, if you secure a three-bed home at €378,000, you will get a discount of almost 25 per cent on the council’s “market value” of €498,000.
But, if your income is at the higher eligible range, you may end up paying €473,100 – which means a discount of just €25,000, or 5 per cent.
It also means that you won’t find out how much you have to pay until the assessment process is completed. A spokeswoman for Dublin City Council says provisional offers will be made on this basis, “and the applicant will then have time to decide (if they have the means) if they want to contribute more towards the purchase price, at which stage the final formal offer will issue”.