Media: Scrapping Help-to-buy Scheme would be disruptive and a mistake

The_Conductor

Today's Irish Times have an interview with the head of the State's Housing Agency- who argues that scrapping the HTB scheme would be very disruptive in the market and a major mistake.

Link here

Mr. O'Connor- the head of the Housing Agency- is arguing that instead of abolishing the scheme- it should be fundamentally changed. It should no longer be a grant for first-time buyers- instead, it should be a secondary long term loan, at a preferential interest rate, to assist all buyers with their deposit requirements.

On a secondary topic- the construction of social housing units by the state was brought up- and the appalling lack of construction by local authorities nationally was highlighted. Apparently- nationally, there were 161 dwellings consturcted by local authorities in the first 9 months of last year- the largest number being 31 by Dublin City Council.

These sort of numbers- are crazy- when we're in the middle of a housing crisis- and whatever about the HTB scheme- this abject failure to deliver social housing units- is just short of criminal in the current climate.

Personally- when even the head of the Housing Agency- who is claiming to be defending the HTB scheme- is in favour of commuting it to a term loan for purchasers- I think the writing is very much on the wall for it. Between the HTB scheme, cash back from lenders- and the 5 and 10 years mortgage loyalty bonuses- the central bank deposit rules have been shredded and regurgitated in such a manner that they are wholly unrecognisable. What most borrowers want- are lower rates- consistently lower rates- these one off special deals- aren't very special- when long term they have to be paid for at a very very high price.

We need adherance to central bank deposit rules- we need far better rates from our lending institutions- and we also need reasonable long term fixed products- the same as are on offer in other EU jurisdictions. The introduction of whole-term mortgage products- the same as in the Netherlands or Germany- would be a boon- as it might help get Irish people off their addiction to overnight ECB rates- and onto a more sustainable longer term footing- where the vagaries of market rates were not as critical.

Read somewhere the the Sparkasse Landesbanks- were offering to come in and setup not-for-profit-lending institutions here- a model which works very well in the Lander in Germany- and which has recently been exported, with a few tweaks, to Greece and Portugal. The idea is- its run by the local authorities on a cost-recovery basis, there are far better rates for borrowers- and as there is no profit imperative- but costs are kept to a minimum- its a far more sustainable model in a volatile marketplace. It should also help drive down the rates being offered by the commercial lenders- but would be subject to restrictions (higher deposit requirement, lower overall cost prices etc etc).

Apparently- despite the overtures- the Irish government haven't shown any interest in even looking into the scheme- despite German offers, thus far.

We have a hell of a lot wrong with our various systems here- however, the manner in which our borrowers are subject to the vagaries of ECB overnight rates- which are currently at historically unprecedented levels- is something that has bitten us badly in the past- and is something we cannot allow to bite us again in the future.

Colonel Claptrap

Lower rates help existing borrowers.
But does little for renters, trying to buy a home.

Agreed, the central bank lending rules have been bent. But the fundamentals are still sound. 3.5 times salary and no more 100% mortgages.

Like it or hate, the HTB scheme encourages developers to build more homes.

If we can rely on the central bank safeguards to promote responsible lending, then I think the HTB scheme should stay.

The state will simply not build social housing. The reality is that we need developers to build homes.

Henbabani

reallt bad scheme, only makes the prices go up because people think "oh we pay 350K but it's only 330K so it's a good price, let's take the house" and therefore they willing to pay more.
the scheme needs to be vanished and the centrel bank sould limit the mortgage amount.

awec

You still need your 10% deposit, you still can only get 3.5 times your salary (with the usual exceptions). The only difference being you are being given back some of the tax you have paid to help you get that deposit together. Unless I am missing something I don't see how it has any affect on the CB rules.

If it's scrapped it'll be brilliant news for landlords.

awec

Henbabani wrote: »

reallt bad scheme, only makes the prices go up because people think "oh we pay 350K but it's only 330K so it's a good price, let's take the house" and therefore they willing to pay more.
the scheme needs to be vanished and the centrel bank sould limit the mortgage amount.

Do you really think prices will fall if they scrap it?

House prices are going up regardless. They will continue to go up until supply increases dramatically.

The_Conductor

awec wrote: »

If it's scrapped it'll be brilliant news for landlords.

Why?
Landlords couldn't give a rats arse whether its scrapped or not.
It means absolutely nothing for a landlord.
It only ever applied for first time buyers- and as per the major investigation RTE aired (Primetime Investigates)- it resulted in an exact increment on the price of new houses by developers within 10 days of the scheme being announced.

It was a sop for developers- no-one else benefited- other than developers.
First time buyers- were no better or worse off- if it counted towards the deposit rather than the gross amount they were paying for the property- it meant they paid a smaller than 10% deposit for the property.

Prospective landlords- didn't get the grant- as it was only for FTB owner occupiers.

No-one else benefited.

Landlords genuinely couldn't care one iota whether the scheme is extended, or not- its moot, it doesn't affect them one little bit. In any event- the proportion of the new builds being sold to landlords- has fallen through the floor (as the number of small scale landlords has dwindled over the last 5 years- from over 230,000 to less than 160,000- as per the RTB annual report).

If its scrapped- or converted into a term loan- as per the proposal from the housing agency- it has no impact whatsoever on landlords- or anyone else- all it does is remove a small subsidy from developers.

Its was a bad scheme, badly implemented- that was wholly circumvented less than a forthnight after it was announced- and this has all been documented by RTE and given plenty of airtime.

The_Conductor

awec wrote: »

Do you really think prices will fall if they scrap it?

House prices are going up regardless. They will continue to go up until supply increases dramatically.

+1

The scheme did increment prices by between 14 and 20k within 10 days of being announced- however, it would be foolhardy to imagine, in the absence of a significant increase in supply- that there would be a commensurate reduction in prices- if the scheme were abolished and/or commuted to a term loan (which is the Housing Agency's preferred option).

Prices aren't going to stabilise- until supply side issues are resolved.

awec

The_Conductor wrote: »

Why?
Landlords couldn't give a rats arse whether its scrapped or not.
It means absolutely nothing for a landlord.
It only ever applied for first time buyers- and as per the major investigation RTE aired (Primetime Investigates)- it resulted in an exact increment on the price of new houses by developers within 10 days of the scheme being announced.

It was a sop for developers- no-one else benefited- other than developers.
First time buyers- were no better or worse off- if it counted towards the deposit rather than the gross amount they were paying for the property- it meant they paid a smaller than 10% deposit for the property.

Prospective landlords- didn't get the grant- as it was only for FTB owner occupiers.

No-one else benefited.

Landlords genuinely couldn't care one iota whether the scheme is extended, or not- its moot, it doesn't affect them one little bit. In any event- the proportion of the new builds being sold to landlords- has fallen through the floor (as the number of small scale landlords has dwindled over the last 5 years- from over 230,000 to less than 160,000- as per the RTB annual report).

If its scrapped- or converted into a term loan- as per the proposal from the housing agency- it has no impact whatsoever on landlords- or anyone else- all it does is remove a small subsidy from developers.

Its was a bad scheme, badly implemented- that was wholly circumvented less than a forthnight after it was announced- and this has all been documented by RTE and given plenty of airtime.

Because if it's scrapped it's ultimately going to trap more would-be FTBs in the rental market. It is good for landlords and investors, there'll be no fall in the demand for their properties any time soon, the current status quo will remain.

It made a big difference to FTBs, at least in my case it realistically took 12/18 months off the time it would take me to save the deposit we need. We wouldn't even be looking at buying now without it. If it goes before we find somewhere then we're basically out of the market again.

They are still paying a 10% deposit, it's a tax rebate. You only get back what you have paid yourself.

I still believe it will stay for what it's worth.

Colonel Claptrap

The_Conductor wrote: »

Its was a bad scheme, badly implemented- that was wholly circumvented less than a forthnight after it was announced-.

Only if you view it through the lens of it being a FTB grant. It wasn't. It was always an incentive to developers at a time when their name was dirt, and a government couldn't be seen placing money directly in developer's pockets.

Anyone who thought the HTB's aims were to help house buyers was misinformed. Don't let the name fool you. Help to Sell is more apt.

It's a supply side incentive, not a demand side one.

You have said it yourself.

The_Conductor wrote: »

It was a sop for developers- no-one else benefited- other than developers.

Looking at it through this lens, it is a success and should remain. IMO.

awec

Also, I would argue that it is impossible to properly measure the success / failures of a scheme like this after only 12 months. The property market is not exactly fast moving, it will take time to see if it is having the desired affect on developers.

super_furry

The problem is, the genie it out of the bottle now. Developers aren’t going to suddenly drop their prices by €20,000 if or when the plan is scrapped.

The_Conductor

awec wrote: »

Because if it's scrapped it's ultimately going to trap more would-be FTBs in the rental market. It is good for landlords and investors, there'll be no fall in the demand for their properties any time soon, the current status quo will remain.

It made a big difference to FTBs, at least in my case it realistically took 12/18 months off the time it would take me to save the deposit we need. We wouldn't even be looking at buying now without it. If it goes before we find somewhere then we're basically out of the market again.

They are still paying a 10% deposit, it's a tax rebate. You only get back what you have paid yourself.

I still believe it will stay for what it's worth.

Essentially- from your perspective- the benefit was it reduced the length of time it took you to save your deposit. It didn't do anything else- because it was incremented in full onto the price of the property.

We are effectively at 100% utilisation in the rental sector- landlords aren't going to benefit from having more tenants in the market- they have nothing to let to them. Its not benefitting landlords at all- from the perspective of the rental market- there simply isn't any availability.

The scheme was an incentive for developers- full stop.

The Central Bank- was furious when it was announced- as they had announced their lower deposit requirements for first time buyers- only a few weeks previous- and this scheme effectively pulled the rug from under them. In light of the effective undermining of the deposit rules- by the scheme- the Central Bank are now proposing to abolish the favourable deposit rules for FTBs- putting them on a level pegging with subsequent buyers who are trying to trade up (or down etc).

Colonel Claptrap- has this in a nutshell. Its a scheme to help developers. Its all giftwrapped as some sort of a feel-good pressie for first time buyers- but other than undermining the deposit requirement, allowing them effectively borrow up to 100% (unofficially of course)- it hasn't helped them either- as it brought an unnatural number of buyers onto the market all at the same time- who subsequently went on to drive prices in a manner that wouldn't have happened- had they had to save up deposits over a protracted period of time- rather than all hitting the market at the same time.

I.e. prospective buyers would have been drip fed on the market- if the grant hadn't been present- versus a whole gang of FTBs driving prices up- when they all were able to bid, all together, all at the same time.........?

awec

The_Conductor wrote: »

Essentially- from your perspective- the benefit was it reduced the length of time it took you to save your deposit. It didn't do anything else- because it was incremented in full onto the price of the property.

We are effectively at 100% utilisation in the rental sector- landlords aren't going to benefit from having more tenants in the market- they have nothing to let to them. Its not benefitting landlords at all- from the perspective of the rental market- there simply isn't any availability.

The scheme was an incentive for developers- full stop.

The Central Bank- was furious when it was announced- as they had announced their lower deposit requirements for first time buyers- only a few weeks previous- and this scheme effectively pulled the rug from under them. In light of the effective undermining of the deposit rules- by the scheme- the Central Bank are now proposing to abolish the favourable deposit rules for FTBs- putting them on a level pegging with subsequent buyers who are trying to trade up (or down etc).

Colonel Claptrap- has this in a nutshell. Its a scheme to help developers. Its all giftwrapped as some sort of a feel-good pressie for first time buyers- but other than undermining the deposit requirement, allowing them effectively borrow up to 100% (unofficially of course)- it hasn't helped them either- as it brought an unnatural number of buyers onto the market all at the same time- who subsequently went on to drive prices in a manner that wouldn't have happened- had they had to save up deposits over a protracted period of time- rather than all hitting the market at the same time.

I.e. prospective buyers would have been drip fed on the market- if the grant hadn't been present- versus a whole gang of FTBs driving prices up- when they all were able to bid, all together, all at the same time.........?

I am under no illusions it was aimed at developers. But reducing the time it takes to save a deposit is a big deal.

How has it helped anyone borrow 100%? You are still paying your 10% deposit, that hasn't changed whatsoever. Whether the money comes from a tax rebate or years of savings it makes no difference. 10% is the minimum.

The_Conductor

awec wrote: »

I am under no illusions it was aimed at developers. But reducing the time it takes to save a deposit is a big deal.

How has it helped anyone borrow 100%? You are still paying your 10% deposit, that hasn't changed whatsoever. Whether the money comes from a tax rebate or years of savings it makes no difference. 10% is the minimum.

Reducing the time it took people to save their deposit- meant a lot of first time buyers all hitting the market at once- instead of over a period of time- which lead to a short sharp shock in prices- where over an 10-12 week period, prices of new properties were hiked by up to 20% (of course this includes the 14-20k sop to developers).

As for up to 100% mortgages-

90% mortgage
+ say 20k (HTB)
+ 2% from lender
+ 5% discretionary exemption

Ok- not everyone hit a 100%- and it wasn't a straight 100% mortgage- but it added up in that direction.

Dr_Kolossus

I don't have the figures as to how much the grant was or how much is allowed at what price, so this is just a simple example minus many variables.

Say you want to buy a house at 180k but need 20k deposit and have zero deposit. Next day government gives you 20k via htb. Price rises to 200k, but you now magically have your deposit.

You still pay ,100% of the original 180k asking. And in effect 100% mortgage. But the developer gets 20k more. And prices rise for all houses with the new benchmark.

Maybe I'm missing something but that's how I see the htb scheme

awec

Dr_Kolossus wrote: »

I don't have the figures as to how much the grant was or how much is allowed at what price, so this is just a simple example minus many variables.

Say you want to buy a house at 180k but need 20k deposit and have zero deposit. Next day government gives you 20k via htb. Price rises to 200k, but you now magically have your deposit.

You still pay ,100% of the original 180k asking. And in effect 100% mortgage. But the developer gets 20k more. And prices rise for all houses with the new benchmark.

Maybe I'm missing something but that's how I see the htb scheme

If the house is 180k the maximum tax rebate you can get is 9k. You would still have to find 9k minimum of you own savings.

The HTB will give you up to 20k or 5% of the value of the house, whatever is lower, and provided you have paid that much in eligible taxes the past 4 years. Nobody will be able to make up their entire deposit with their tax rebate, you will have to save at least half of the deposit amount.

The_Conductor

Average amount paid under the HTB scheme is 14,600- not the full 20,000 for a variety of reasons- not least, because the average property price paid by FTBs in the last 12 months (according to the CSO) was 335k. I'm guessing the fact that the average payment was 14,600- is a reflection of how much tax people had paid- rather than the price for the property. Regardless- within 10 days of the scheme being announced- according to the RTE Primetime Investigates programme- the entirety of the max payment under the HTB scheme- had been incremented onto the purchase price of houses..........

Dr_Kolossus

awec wrote: »

If the house is 180k the maximum tax rebate you can get is 9k. You would still have to find 9k minimum of you own savings.

The HTB will give you up to 20k or 5% of the value of the house, whatever is lower, and provided you have paid that much in eligible taxes the past 4 years. Nobody will be able to make up their entire deposit with their tax rebate, you will have to save at least half of the deposit amount.

I knew the figures were not accurate, I said that! Thecexample was more to explain the idea as to why ftb'speople end up paying same and others pay more

Graham

The_Conductor wrote: »

Reducing the time it took people to save their deposit- meant a lot of first time buyers all hitting the market at once- instead of over a period of time

That's exactly it. I'm sceptical that the HTB scheme did anything at all to increase supply.

It essentially brought forward shopping dates increasing demand (and prices) on a bunch of developments that would arguably have been built anyway.

I think a more direct incentive to developers to encourage construction could have given better results. Unfortunately a large part of the population would start foaming at the mouth at the thought of developers being directly incentivised to build.

awec

Graham wrote: »

That's exactly it. I'm sceptical that the HTB scheme did anything at all to increase supply.

It essentially brought forward shopping dates increasing demand (and prices) on a bunch of developments that would arguably have been built anyway.

I think a more direct incentive to developers to encourage construction could have given better results. Unfortunately a large part of the population would start foaming at the mouth at the thought of developers being directly incentivised to build.

In ~10 months? Of course it hasn't.

hytrogen

The_Conductor wrote:

We are effectively at 100% utilisation in the rental sector- landlords aren't going to benefit from having more tenants in the market- they have nothing to let to them. Its not benefitting landlords at all- from the perspective of the rental market- there simply isn't any availability.

Asides the savage increase in rents seen over the past 12months due to the alleged high demand being promoted by daft.ie and their spin. Granted many friends of mine have opted to move back home in the past two months (professional early to mid 30yo's!) On the basis that they can't afford to save to obtain a deposit when you're being told to pay 1000pcm per room, up from 5/600pcm per room, in a 4bed in Ballinteer for example.

Colonel Claptrap

The_Conductor wrote: »

As for up to 100% mortgages-

90% mortgage
+ say 20k (HTB)
+ 2% from lender
+ 5% discretionary exemption

Ok- not everyone hit a 100%- and it wasn't a straight 100% mortgage- but it added up in that direction.

Hold your horses.

A 400k property requires a deposit of 40k. The HTB provides 20k which reduces the deposit requirement to 5%. But how many FTB's who availed of the scheme provided the minimum deposit? I've yet to see figures on this. Anecdotely I know of 6 people who availed of ~15% deposits whilst using the scheme.

The 2% from lender is an incentive provided after the mortgage has been drawdown. It is not part of the deposit. I challenge you to find a single FTB in the country who used this 2% to further paydown their mortgage immediately after receiving it. Even if they did, it does not form part of the deposit.

As for the 5% discretionary exemption this only applies to 10% of all mortgages provide this year - on both new and second hand houses. Of the 50,000 houses which changed hands in 2016 only 4,000 were new builds. This is a miniscule subset of the mortgage market.

I am willing to bet good money that not a single 100% mortgage was granted as a result of the HTB scheme.

Graham

awec wrote: »

In ~10 months? Of course it hasn't.

Yet in the same length of time it has accelerated demand and driven up prices.

As I said, would have been better spent elsewhere.

awec

Graham wrote: »

Yet in the same length of time it has accelerated demand and driven up prices.

As I said, would have been better spent elsewhere.

Of course it has accelerated demand, that was the point. It's going to take more than 10 months for the market to adjust to that though, there is no point in writing it off as a failure already.

Graham

awec wrote: »

Of course it has accelerated demand, that was the point.

A more sensible solution would have been to increase supply first. Not increase demand in an already supply constrained market

awec

Graham wrote: »

A more sensible solution would have been to increase supply first. Not increase demand in an already supply constrained market

That's what this is to incentivise. It'll take longer than 10 months.

The_Conductor

awec wrote: »

That's what this is to incentivise. It'll take longer than 10 months.

How is driving demand- in a sector which is having severe difficulty in ramping up production- to the extent they have just increased wages by 10% (and its been signed off on as a sectoral wage agreement by the Minister)- going to solve anything?

It has been irrefutably shown (RTE Primetime Investigates) that the max of the HTB grant- was incremented onto prices- within 10 days of the announcement of the scheme.

If the purpose of the scheme is to incentivise developers to construct more properties- the logical thing to do would be to evaluate whether, or not, the industry has the capacity to construct more units- before throwing a sop at it- which simply results in increased prices for the public?

The CIF have been desperately trying to convince Irish brickies, carpenters and electricians- to return to Ireland- and have held recruitment drives in Australia and Canada in support of this- alongside taking part in recruitment drives in Poland and some other Eastern European countries. They quite simply do not have the capacity to deliver increased volumes- regardless of how much money the government throws at them. Quite simply- its driven up asking prices for punters- period.

We've been down this road before- and nothing good has come of it. Why is this time any different?

awec

You said it yourself, the scheme was an indirect grant for developers to make it more attractive for them to build properties.

Has it driven prices up? Who knows, we have no idea if they'd have gone up regardless but we can make an educated guess that they would have. It is a bit disengenuous to suggest that the HTB is the cause.

It'll take time to see if it works. For many reasons, one of which is I am sure developers are waiting to see how committed the government are to the scheme.

You are saying that giving grants to developers (which effectively is what this is) won't increase supply. If that won't, then what will?

Graham

awec wrote: »

You said it yourself, the scheme was an indirect grant for developers to make it more attractive for them to build properties.

I'd argue that the developments would have gone ahead without the 'indirect grant', there's nothing to suggest building activity has increased as a result of the HTB scheme.

I would prefer to see the tax allowances currently stymying development adjusted, specifically those that incentivise owners/developers to do nothing until 2019 and beyond.

I would prefer to see developers offered tax breaks for delivering specific quantities of units, at specific densities, to a specified (and inspected) standard at or below a specific target price.

The_Conductor

awec wrote: »

Who knows, we have no idea if they'd have gone up regardless but we can make an educated guess that they would have. It is a bit disengenuous to suggest that the HTB is the cause.

We do know though- RTE Primetime Investigates- 10 days after the scheme was announced- showed the maximum allowed under the scheme, neatly incremented onto the asking prices for all new developments they examined. I know there are coincidences- however...............

REFLINE1

The_Conductor wrote: »

We do know though- RTE Primetime Investigates- 10 days after the scheme was announced- showed the maximum allowed under the scheme, neatly incremented onto the asking prices for all new developments they examined. I know there are coincidences- however...............

yes ,and all the previous phase launches of those estates had jumped a similar amount,phase to phase, well prior to the FTB grant.