First Home Scheme a No-Brainer for First Time Buyers
Mel Reynolds signalled a note of caution in relation to the First Home Scheme referring to it as a potential “debt timebomb” in today’s Indo. I wish to take the other side of that trade so to speak and to make the case in favour of the scheme. He warns that buyers availing of the scheme to borrow the average amount of €66,000 could end up owing the State as much as €106,000 in as little as five years, if house prices keep rising. For a buyer who avails of the scheme to purchase a property for €330,000 and takes a 20% equity loan, the initial loan would indeed be €66,000. In return, the Government takes a 20% ownership share in the property. The homeowner gets 100% enjoyment of the property so the Government is like a silent partner in the investment.
For the first time buyer to owe €106,000 the value of the property would need to have risen to €530,000. While the value of the Government’s 20% has increased in value, so of course has the homeowner’s 80% stake in the property. As per the table below, the purchaser would stand to make a profit of €218,000 after repaying the equity loan if they sell at the start of year six. When netting out the approximately €58,380 of mortgage payments that would have been made over the period, the borrower walks away with a clean, tax free €160,246 which is a 5341% return on the initial €3,000 cash investment, having enjoyed exclusive use of the property for five years! If this is a timebomb, then I want to be blown up as to me it seems like a very sound bit of personal finance business.
In addition, a lesser known characteristic of the First Home Scheme is that the borrower need not start making cash repayments of the service charges from year six. Rather, these can be let to accrue on a simple interest basis and ultimately be discharged from the proceeds of the sale, when sold, or even from the owner’s estate if the property is held until death i.e. the borrower never need to make monthly repayments if they chose not to do so. Furthermore, albeit it seems extremely unlikely given the supply demand imbalance that exists at present and looks set to continue as far as the eye can see, if there ever was a fall in the value of the property, the balance of the equity loan outstanding falls pro-rata with the decrease in the value of the property i.e. the borrower is insulated in case they have to sell for less than what they paid for the property. This is because the Government gets back the percentage of the property that they loaned at the start, for good or for bad. These are terms that would never be offered by a private lender and of which non first time buyers look on jealously!
My advice, for what it’s worth, would be to avail as much of this extremely cost effective, cashflow neutral financing as you can get. As the value of your outstanding equity loan increases, the value of your equity in the property increases by far more meaning you net out significantly ahead.
Below sets out the circumstances under which a first time buyer would end up owing €106,000 in year six having purchased a property for €330,000 in 2025, availing of a 20% equity loan under First Home Scheme.