First Home Scheme

The First Homes Scheme (FHS) was set up in July 2022, by the government, to help alleviate the significant affordability and financing issues experienced by first time buyers and others looking to acquire newly constructed homes. The Scheme is an “affordable housing scheme” aimed at first-time buyers and ‘fresh start’ applicants. As part of this initiative the government and participating lenders provide up to 30% of the purchase price of a new home in exchange for an equity stake in the home; with the option for purchasers to buy back this stake at a time in the future. This funding is needed in many cases where there is a gap between the purchase price and the combined value of (a) the 10% deposit payable by the purchaser and (b) standard mortgage finance.

FHS Criteria/Requirements

The FHS is open to first-time buyers and fresh start applicants. A first-time buyer is an individual who has not previously bought or built a property to reside in, with no financial interest in any other property in Ireland or abroad. A fresh start applicant is one who no longer has any financial interest in a property that they have previously owned, due to a number of factors such as divorce, separation, personal insolvency or bankruptcy. Where the applicant is buying the property with a second person, that other person also must comply with the same criteria.

The property must be new, and the applicant(s) must reside in the property. The property must be built on a site owned by the applicant, or a site which the applicant intends to acquire. If the property has already been built, it must be newly built in a private development. 

For a property to be included in the FHS, the purchase price cannot exceed certain limits. These limits vary throughout the country. By way of example, local authority areas in Dublin City, Cork City, Dun Laoghaire-Rathdown, Fingal and South Dublin have price limits of €475,000 for houses, €500,000 for apartments, and €475,000 for self builds. Duplexes fall within the house limits or the apartment limits depending on whether the main door opens to an external area or not.

The First Home Scheme is only available to applicants who obtain mortgage finance from a participating lender (AIB, Bank of Ireland, PTSB) and who borrow the maximum amount available to them while not obtaining a macro prudential exemption. There is also a requirement for the applicant to provide a deposit of 10% of the purchase price of the property.

The FHS is a shared equity scheme, whereby the FHS will own a percentage of the property, which can be bought back by the applicant at a later stage. The FHS can be applied for in conjunction with the Help To Buy Scheme (which provides funding of up to €30,000, or 10% of the purchase price of the property and is used in funding portion of the deposit requirement in new home purchases), but it reduces the FHS funding to 20% of the purchase price.

FHS Service Charges

There are no ongoing costs/charges payable by homeowners for the first 5 years following purchase. However, if the applicant has not bought out the equity share by the sixth year a service charge is applied. This service charge is a percentage of the allocation, which steadily increases the longer the applicant stays in the FHS without buying out the equity share.  The advantages to how the service charge is structured is that unlike many variable rate mortgages it is fixed and it can be paid annually, in monthly instalments or even on a deferred basis.

Buying Back/Redeeming the FHS Equity Share

In order to avoid ongoing charges and the FHS entitlement to a share in the proceeds of the house, the applicant has an option to buy back the equity share owned by the FHS. The cost of the buyout will be based on the equity share percentage (as calculated when the house is purchased) of the market value of the house at the time of redemption. This can be done in one payment or in instalments, making a maximum of two payments annually. The minimum required for any one payment is 5% of the original equity amount. As the equity share is valued based on the market value of the property, the amount of the buyout would increase in line with any increase in the value of the property.

To start the buyback process, the home must be valued by a FHS Approved Valuer. The valuation report produced is then used by FHS to give a redemption amount. Homeowners not happy with the valuation can have the house valued on two subsequent occasions, with the third valuation being final.

If the homeowner adds value to the home (e.g. they extend the property), this is not taken into consideration when the home is being valued.

Finally, the equity share must be paid back if the homeowner intends to rent out or sell the home. Also, if the homeowner switches mortgage providers to a lender not participating in FHS, the equity has to be redeemed.

Tenant Home Purchase Scheme

The Tenant Home Purchase Scheme has also been established as an extension of FHS. This scheme allows applicant tenants to purchase a property being sold by their landlord. As this relates to second-hand homes, the applicants will not be eligible to obtain the Help to Buy Scheme along with it. When applying, applicants must send in a valid notice of termination of their tenancy along with a mortgage approval.

FHS in Practice

3,200 applicants have successfully availed of the FHS as of January 2024. 77% of these applications were approved in Dublin, Cork, Kildare, Meath, and Wicklow, with an average purchase price of €380,000. 

While the scheme has been criticised in some quarters as being a ‘demand led’ measure which may result in further increases in the price of new homes, there is little doubt that individual homeowners, previously locked out of the housing market, are benefiting from the FHS. The current housing crisis requires government intervention at a number of levels and, since the financial crash, the inability of prospective homeowners to bridge the gap between house prices and the combined aggregate of their mortgage loan and saved deposit has been a consistent complaint from the members of the public and developers selling new homes. The FHS is an attempt to assist these people but it will take time to assess whether the scheme has been a success or not.

For further information please contact Killian Morris (Partner) or your usual AMOSS contact.