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Help to Buy is merely subsidised inflation

The Help to Buy Scheme was introduced in 2016 to provide support for first time buyers saving for a deposit on a newly built home, thereby also stimulating activity in a construction sector still feeling the effects of the downturn.  To avail of the scheme, the applicant must be a first time buyer, must have a mortgage of at least 70 per cent of the value of the home and, initially, the property must have a value of €600,000 or less (this was changed to €500,000 or less for homes built after 01 January 2017).

The maximum amount available under the Scheme is €20,000 per home.  Data available from Revenue show that the Scheme has overrun every year since it was introduced.  The total allocation for 2019 was €130 million, by August this year total expenditure had reached €206.4 million.  Analysis of the Scheme by the Parliamentary Budget Office last month shows that the average value of a home subsidised by the Scheme was above the average residential sales price, with at least 56 per cent of subsidised homes valued over the average market price.  This is subsidised house price inflation.  With Central Bank macroprudential rules in place, these higher house values need higher incomes to service the associated mortgages.

As well as this, an analysis of the scheme by the Parliamentary Budget Office (PBO), indicated that 41 per cent of approved claims were made by buyers who had a loan-to-value ratio of less than 85 per cent. In other words, they already had a deposit of at least 10 per cent. This is a deadweight loss, largely benefiting households on higher incomes.

The report also noted taht roughly 21 per cent of Help to Buy claims were for properties priced over €375,000. Assuming a loan-to-value ratio of 90 per cent, a household would need an income of €96,429 to purchase a property of €375,000. Again, this suggests that the scheme is benefiting households at the higher end of the income distribution.

Statistics from Revenue also indicate that almost a quarter of successful claims have been for self-builds. Encouraging these is hardly the objective of the scheme.

Even the ESRI, in their post-budget analysis, referred to Help to Buy to as a "poorly targeted policy that could add to house price growth". Extending the Help to Buy Scheme for an additional two years subsidises the better off at the expense of providing sustainable and affordable homes for those in most need.