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What is the Affordable Purchase Shared Equity Scheme

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Ultimate Guide to Shared Equity Scheme

Contents

The Affordable Purchase Shared Equity Scheme

 An Ultimate Guide

The Government’s Shared Equity Scheme looks set to be enacted into legislation soon. In this guide, we answer all the questions that you have but are afraid to ask. We also provide a useful calculator to help you see how much of an equity loan you can avail of and how much it will cost you each month in repayments. The scheme has not gone live yet but here’s what we know so far.

Why Has the Government Launched a Shared Equity Scheme?

Darragh O’Brien, the housing minister, has spearheaded this initiative in response to those would-be buyers who are paying high rents but would prefer to be homeowners. Many buyers are locked out of the property market as the macro-prudential rules require them to put up a 10% cash deposit and also limits their total mortgage borrowings to 3.5 times salary. Saving a 10% deposit while paying eye-watering rents is almost impossible. 
The Help to Buy Scheme goes some way to alleviating the deposit conundrum by offering buyers up to 10% of the value of a property back in a tax rebate up to a maximum of €30,000. So a purchaser buying a new-build property for €300,000 can fund the 10% deposit through a tax rebate, assuming they have paid this amount in tax. 
However, if after multiplying their salary (or joint salaries for a couple) by 3.5, they still can’t afford a property, the renter is stuck. Enter the Shared Equity Scheme. In such instances, the Government will make up the shortfall, up to a maximum of 30% of the total price of the property in an equity loan. So now the buyer has the deposit sorted and with the Government bolstering their total buying power, in theory they can go and purchase a new property. This means they are no longer at the mercy of the unforgiving rental market and can start paying down a mortgage instead of wasting money on rent each month. So the theory goes, but let’s take a closer look at the detail.

What is an Equity Loan?

The Government lends you the money and charges interest on this loan. In addition, the Government takes an ownership stake in your property equal to the percentage of the property’s value that they have contributed. So if the Government has put up 10% of the money via an equity loan, they own 10% of the property. This differs from a mortgage whereby the bank puts up the money and takes a charge on the property as a security but does not take an ownership stake in the property. If you sell a property that has a mortgage, you pay back the outstanding mortgage. If you sell a property that has an equity loan, the lender is entitled to their percentage of the sales price; if the price has gone up, you will pay back more than the initial loan i.e. the lender shares in the capital appreciation of the property. A bank lending a mortgage does not.

Am I Eligible for the Shared Equity Scheme?

The scheme is available to all first time buyers of new-build properties.

Does the Shared Equity Scheme Apply to Second Hand Properties?

Unfortunately not; only new-build properties are eligible. 

How Much Can I Borrow Under the Shared Equity Scheme?

The maximum that you can borrow is 30% of the price of the property. 

What if I Can Afford the Property Without the Equity Loan - Can I Still Avail of it?

No - if your total mortgage approval plus your deposit are sufficient to purchase the property, you cannot avail of the loan. It is designed to make up a funding shortfall when the deposit plus mortgage approval is less than the purchase price of the property.

Are There Any Limits on the Price of the Property I Can Purchase While Availing of the Shared Equity Scheme

Yes. Please see the table below.

 

House

Apartment

Dublin City

€450,000

€500,000

Dún Laoghaire

€450,000

€500,000

Cork City

€400,000

€400,000

Fingal

€400,000

€400,000

Galway City

€400,000

€400,000

South Dublin

€400,000

€400,000

Wicklow

€400,000

€400,000

Co. Cork

€350,000

€350,000

Limerick

€350,000

€350,000

Kildare

€350,000

€350,000

Meath

€350,000

€350,000

Clare

€300,000

€300,000

Westmeath

€300,000

€300,000

Wexford

€300,000

€300,000

Carlow

€275,000

€275,000

Louth

€275,000

€275,000

Offaly

€275,000

€275,000

Kerry

€250,000

€250,000

Kilkenny

€250,000

€250,000

Laois

€250,000

€250,000

Waterford

€250,000

€250,000

Roscommon

€250,000

€250,000

Cavan

€225,000

€225,000

Donegal

€225,000

€225,000

Leitrim

€225,000

€225,000

Longford

€225,000

€225,000

Mayo

€225,000

€225,000

Monaghan

€225,000

€225,000

Sligo

€225,000

€225,000

Tipperary

€225,000

€225,000

 

Do I Have to Pay Interest & Capital Repayments on the Equity Loan?

During years 0-5, no interest is payable on the loan. From years six to 15, an interest rate of 1.75% will apply. From years 16 to 29 an interest rate of 2.14% will apply. Unlike a typical mortgage however, the repayments are interest only i.e. no capital repayments are required. 

Can I Buy Out the Government’s Stake in My Home?

The Government is loaning you money and takes an equity stake in your property i.e. if the Government loans you 15% of the purchase price of the property, they own 15% of the property. You can buy out this percentage for cash at any stage. If you choose not to buy out the Government’s equity in your property, you will be liable to pay the associated interest charges each month.

Can I Sell My Property if I Avail of the Shared Equity Scheme?

Yes you can but the government will be entitled to their percentage of the proceeds. If the government owns 17% of the property, 17% of the proceeds of the sale will accrue to the Government. 

What if I Still Can’t Afford the Property even with The Shared Equity Scheme

If your deposit plus your mortgage approval plus 30% of the purchase price come to less than the total purchase price, then unfortunately you currently can’t afford this property. 

Can I Avail of the Help to Buy Scheme in Addition to a Shared Equity Loan?

Yes, so long as you are a first time buyer who is eligible for the Help to Buy Scheme, you can avail of it in conjunction with the shared equity scheme. So for example, if you were purchasing an apartment in Dublin for €500k, you could receive the Help to Buy rebate of €30k towards the deposit of the property meaning that you would need to have €20k in savings.  
Let’s suppose you had a joint salary of €90k. A lending institution would lend €315k (3.5 times salary) meaning you are €135k short. This is where the Shared Equity Scheme comes in. The State would provide a €135k equity loan in return for a 27% equity stake in the property. So a couple earning €90k with savings of €20k could buy an apartment worth €500k. They would only technically own 73% of the property but would have full, unrestricted access to 100% of the property - the government doesn’t show up at weekends looking for use of the property!

Affordable Purchase Shared Equity Calculator

Coming Very Soon!

Disclaimer:

While every effort has been made to ensure the accuracy of this guide, Auctioneera accepts no liability for any errors or omissions. Ensure to take formal advice before making any financial decision. 

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