The government's Home Choice Loan scheme to help first-time buyers is unlikely to attract queues like these for new homes

On the basis of what's on offer — 92% loans for first-time buyers, on new, private houses for incomes more than €40,000 per annum — the government's new Home Choice Loan scheme, is a good deal.

However, estate agents, vendors, politicians, property-market pundits, bloggers and even first-time buyers (FTBs) at whom the scheme is aimed are divided on whether it actually is.

Those vehemently against it say it amounts to nothing more than state-sponsored sub prime lending, referring to it as the 'no choice loan'.

Financial advisor Karl Deeter has slammed it as a "textbook builders' bail out", rebranding it the 'Guaranteed Negative Equity Scheme'.

Based on the money available for the loans it doesn't look like builders will get much of a bail out.

It is understood that the money will not come from the ¤1.66bn the Exchequer has allocated to housing in 2009 but from the Housing Finance Agency. It has the capacity to support up to ¤500m in drawdowns.

A recent report by Goodbody suggests that there may be as many as 50,000 built but unsold homes on the market.

The maximum loan amount the government will lend FTBs under the new scheme is up to a maximum of ¤285,000. At a very crude estimate that equates to finance for around just 1750 new homes.

The Minster for Housing, Michael Finneran, has denied that the Home Choice Loan has been set up to help builders to offload excess stock.

He said that the scheme is purely about sustaining a line of credit to those unable to secure finance due to the credit crunch; kickstarting the market is not the aim of the scheme.

Helping buyers who have been refused credit by the bank isn't a new initiative. Local authorities have been offering 'annuity loans' to buyers for decades, although while these older schemes are more restrictive in terms of the amount available to borrow, they do cover second-hand properties and even new builds.

Philip Nugent, principal officer for housing policy at the Department of the Environment, says that the scheme is a "take or leave it scheme" and that first-time buyers should go into it "with their eyes open". If no one wants to avail of it, they don't have to. Nugent also says that he "doesn't expect the take up to be that significant as to affect the market."

Since the scheme's website ( went live last Wednesday, it has recorded 3,500 unique hits (up to 1pm Friday), although only 180 people are reported to have 'registered an interest'. That figure would suggest that buyers are simply holding off until property prices fall further.

How the scheme works

Under the Home Choice Loan scheme, the government will lend up to 92% of what it says is "the market value" of a 'new' home, to first-time buyers who earn in excess of ¤40,000 a year.

The mortgage term is for 30 years at a standard variable rate.

The market value of a property will be decided by the Credit Bureau in conjunction with the local authority. According to Nugent, "they will not be going with developers' valuations", which means buyers could be getting even better bargains. However, he adds that "valuers will also not be going in with the predetermined idea that they're going to undercut either if a property is already correctly priced."

As to whether buyers could find themselves in negative equity, Nugent admits that it's a risk any buyer takes. "The value that's worked out will be based on the market value of the property at the time of the loan. We're not going to get into forecasting what it will be worth in a few months time."

To qualify, applicants must have proof of being unsuccessful in securing a sufficient mortgage from a bank or building society and must be in permanent employment for two years. If self-employed, they must be able to submit two years certified accounts.

"Applicants will have to provide written evidence of two refusals," says Nugent, who also adds that there will be "no bias for or against particular types of employment. Each applicant will be assessed on their own merit having regard to their ability to pay, credit history and all other aspects of the formal lending policy".

Buyers will also not be allowed to avail of the 92% government loan and borrow the 8% deposit from the bank. "Applicants will be stress tested and will be required to show a savings record," says Nugent. Adding that the scheme is targeted specifically at middle-income earners, those who can afford a mortgage but can't get one, which is why they must earn more than ¤40,000.

There is no ceiling on how much an applicant earns.

Preparatory work is being finalised, but the scheme is expected to roll out early November. Nugent stresses that it is a "temporary measure" and that it will be in place for at least six months, up to a maximum of 12 months, depending on demand and whether access to credit continues to be a problem.

How to apply

Those who wish to apply can do so through appointed mortgage brokers. A confirmed list is expected to appear on the website over the coming weeks.

Four local authorities – Dublin City Council, Galway County Council, Kilkenny County Council and Cork City Council – will act as the lending authorities.

As to why the four particular authorities were chosen, Nugent says "it's because they all have broadly similar market conditions, and have similar house prices and trends."

Dublin City Council will be responsible for Dublin City, South Dublin, Dun Laoghaire-Rathdown, Fingal, Louth, Meath, Kildare and Wicklow.

Galway County Council will look after Galway City and County, Mayo, Roscommon, Donegal, Sligo, Leitrim, Cavan and Monaghan.

Kilkenny County Council will look after Kilkenny, Longford, Westmeath, Offaly, Laois, Carlow and Wexford with Cork City Council responsible for Cork City and County, Waterford City and County, Limerick City and County, Kerry, Clare, South Tipperary and North Tipperary.

A Central Processing Unit will handle all enquiries and process all loan applications and issue loans in accordance with a formalised credit policy.

While the scheme is open to all FTBs, earning more than ¤40,000, exemptions will apply. FTB applicants are those defined by Section 92B, Stamp Duties Consolidation Act, 1999.

Government Equity Initiative

A second loan provision announced in last week's budget, the new Government Equity Initiative, is also attracting criticism.

It's been set up to streamline the existing affordable housing initiatives into one system, but there could be confusion as it will run alongside the Shared Ownership scheme.

Unlike Shared Ownership, which covers private schemes and even a self-build project, where the buyer pays anywhere over 40% in mortgage finance and the rest in rent, the new scheme is linked to affordable homes only.

Previously affordable properties were offered to buyers at a reduced rate, subject to clawback if they are sold on, under the Equity scheme, the local authorities will take an equity stake in the property, which Nugent says could be around 25% to 30%.

Homeowners are expected to buy back the State's stake before the end of a 35-year term. The stake will be based on the market value of the house.