Government loan scheme may make matters worse

IT IS highly likely there will be strong demand for the Government’s new mortgage scheme given the eyepopping interest rates on offer.

The Rebuilding Ireland Home Loan is expected to be available from local authorities from February, and applies to new, second-hand properties, and self-builds.

Loans are being offered at between 2pc and 2.5pc, fixed over a 25- to 30-year period. Only in other eurozone countries can you get rates fixed at those low levels over such a long time. This shows just how uncompetitive mortgage rates are here.

But there are some worrying aspects to the new scheme. The Central Bank’s loan-to-income limits do not apply, and instead applicants will be judged with reference to net disposable income. This is worrying as it gets rid of a measure specifically put in place to stop people overborrowing. In theory, this means people could borrow up to five times their income. This has prompted some to label the new scheme a subprime mortgage offering.

It is also worth noting that the scheme is open to manipulation by those unscrupulous self-employed people who can manipulate their income, and those who get much of what they earn in cash and don’t declare their incomings honestly to Revenue.

Importantly too, the existence of the scheme will do nothing to tackle the core issue of a lack of properties to buy. In fact, it may make matters worse as it will further pump up demand. A rethink may be necessary.