Shared Ownership Equity Scheme

Programme for Government

The Programme for Government recognises that far more homes need to be built and commits to the following:

• Put affordability at the heart of the housing system.
• Prioritise the increased supply of public, social, and affordable homes.
• Progress a state-backed affordable home purchase scheme to promote home ownership.

Affordable Housing Bill 2020

On 20 January 2021 the Minister for Housing, Local Government and Heritage, Darragh O’Brien, published the Affordable Housing Bill 2020. The bill provides for the establishment of an Affordable Purchase Shared Equity Scheme under which the state will take an equity stake in a new home.

The core objectives of the scheme are to assist first time buyers by helping to bridge the affordability gap and to increase the supply of new homes available to meet increasing demand.

Who Can Apply

It is intended that the scheme will open to all new build homes, will be targeted to first time buyers and will involve price caps on homes dependant on their geographic location. A price ceiling of in the region of €400,000 is expected for Dublin, with lower caps in areas outside Dublin.

Under the proposed scheme applicants will have to live in the property, and it is expected that there will be a form of clawback to the state where a borrower ceases to meet this requirement.

The scheme is designed to assist those that do not qualify for social housing and are unable to obtain a sufficient mortgage to purchase a home to suit their housing needs.

Participation in the scheme is open to those applicants who meet defined eligibility criteria. It is intended to provide in the regulations that the income criteria for eligibility to purchase a particular home will be that the applicant cannot secure a bank/financial institution mortgage for 90% of the market value of the home.

Security arrangements

A primary lender will obtain a first legal mortgage over a property. The state’s equity interest will be secured by way of a second legal mortgage, ranking after that of the primary lender. The contractual arrangements entered into between a borrower and its primary lender in the form of a loan facility letter and mortgage deed will not be affected by the state’s taking of an equity interest in a property. In a default situation, a primary lender would be free to enforce it’s security.

It is envisaged that a housing authority would not, save in the most exceptional circumstances, decide to enforce it’s mortgage during the lifetime of the borrower but will instead wait to get repayment on the disposal of the borrowers estate after death.

If the property was to be sold the primary lender’s facility would be discharged first in time, followed by that of the state and thereafter any surplus monies would be distributed to the borrower.

Financial Implications

A borrower will in essence have two mortgages. The usual mortgage repayments will be made to the primary lender, as provided for in the borrowers loan facility letter.

A borrower shall enter into a separate affordable dwelling purchase agreement with the housing authority, and if the property is sold then the equity loan is repaid.

Impact

Coupled with the Help to Buy Scheme which helps first time buyers to buy a newly built home the proposed equity arrangement should help promote and deliver greater home ownership through improved affordability. As the economy recovers from Covid-19 and confidence returns it is also expected that delivery of new homes should increase to help meet demand. It is anticipated that the scheme will be available later this year.

For further information on this topic, please contact Godfrey Hogan at ghogan@reddycharlton.ie