Affordable scheme fineprint says councils can demand homeowners repay equity after 40 years

Fingal County Council is currently promoting affordable homes to buy in several developments – in Mulhuddart, Hollystown and Donabate.

In Donabate, the prices in Ballymastone – or Balmoston – start from €404,000 for a two-bedroom home, says a document published by Fingal County Council.

Using the Local Authority Affordable Purchase Scheme, a prospective homeowner could snap up one of these two-beds for €299,000 if the council takes a 29 percent equity stake, it says.

The homeowner doesn’t have to buy out that stake in their lifetime unless they sell the home, says the document. “The purchaser can redeem or ‘buy out’ the equity share at a time of their choosing, but there is no obligation to do so.”

Confusingly though, other sources say differently. “You must buy back the local authority’s equity share in your home after 40 years,” says the Citizen’s Information website.

“After 40 years we may request full repayment of our equity share in your home if it has not previously been paid down through redemption payments,” says the Dublin City Council website, of its schemes. “This is referred to as the long stop date”

For many, that crunch point may never arrive. After all, many will sell on and move before that stage, or councils may just not call it in.

But, says housing commentator and architect Mel Reynolds, the provision could cause problems for some retirees given there is no mechanism in place to help homeowners to buy back the equity little by little as they go along. The minimum payment they can make is €10,000 at a time, according to regulations issued in 2022.

A spokesperson for the Department of Housing says the council can demand payment after 40 years but it doesn’t have to do so. “The occurrence of a realisation event shall not oblige the housing authority to serve a realisation notice.”

A spokesperson for Fingal County Council says: “Before looking at entering into an affordable dwelling agreement we advise that a purchaser always seek to have this reviewed by their own legal advisors.”

The scheme

There are two shared-equity schemes with different terms and conditions.

In 2021, the government launched the First Home Scheme,  a shared-equity scheme which allows homeowners to buy homes in the private market and the First Home Scheme takes an equity stake.

The First Home Scheme is a private company with four shareholders, the Minister for Housing, AIB, Bank of Ireland and PTSB, says a spokesperson.

According to a brochure for the scheme, the homeowner only has to repay the equity stake if they sell up, move out, pass away, or switch their mortgage to a non-participating lender.

Councils operate a different shared-equity scheme, called the Local Authority Affordable Purchase Scheme. They have plans for thousands of homes nationwide to be sold under this scheme, working on some with the Land Development Agency.

Different places on the LDA website say different things about paying back the equity stake.

In one place, it says that the state’s equity share doesn’t have to be paid back unless the homeowner sells. But in another spot, it also suggests that homeowners using the local authority scheme could be asked to stump up in certain circumstances.

Those circumstances include “the expiry period of 40 years without redemption in full of the equity share by the purchaser(s) (which will be the period during which the Local Authority may not realise its equity share other than for breach of other conditions of the agreement).”

The legislation underpinning both shared equity schemes is the Affordable Housing Act 2021. It lays out that, after a “long-stop date” set by the Minister for Housing, a council can demand the full repayment of the equity share, if it hasn’t been cleared.

Minister for Housing, Darragh O’Brien, a Fianna Fáil TD, set that at 40 years after the home is purchased.

Does it matter?

Christine Ward, who at 34 years old is keen to move out from her parents’ home, has applied for several of the affordable schemes in Fingal, she says.

So keen, she got a recent application for a scheme in Churchfields in within eight minutes, she says.

“I think it’s a really good scheme,” she says, and better than trying to buy a home on the open market. “But it’s still not very affordable for singles,” says Ward.

For her, the long-stop date doesn’t seem a big issue. She isn’t worried about clearing the council’s equity share because she expects she will move before then, she says. “I’ll hope to clear the equity when I sell. I don’t think it’s my forever home.”

For many, regardless of any pitfalls, the shared-equity schemes are better than renting, says mortgage broker and financial commentator Karl Deeter.

The homes in the Fingal County Council area would be affordable for a couple both working full-time on average incomes of around €45,000, he says. They could get a mortgage of €360,000.

And, most would be like Ward. “It’s very common for people to sell their first home and move on so this will likely take care of a lot of the potential overhangs,” says Deeter. Most people get wage increases over time too, he says.

That said, those who don’t manage to pay off the equity share could face a challenge. “At year 40, there seems to be a cliff that isn’t addressed,” he says. But “there’s probably no way for the government to force you out as then they’d have to house you anyway”.

Architect and housing commentator Mel Reynolds says that one major problem is that the scheme doesn’t appear to be set up to assist the homeowner in paying down the equity share.

The minimum repayments are substantial at €10,000, he says. “How is it envisaged that people will clear it?”

For those who don’t manage to pay it off, “you still owe the full principal after 40 years”, says Reynolds.

The average age of a first-time buyer is 35, so they would be aged 75 when the equity share could be called in. If the state owns 20 percent or 30 percent of the home the only way to clear that is probably to sell the house, says Reynolds. “That is going to be difficult if you are in a smaller property or if it’s not in a great location.”

In his view, shared equity is worse than an interest-only mortgage for a borrower, he says. With an interest-only mortgage, even if capital is not paid down, the value of the money borrowed reduces over time due to inflation but this is the opposite with the shared equity scheme.

“If this scheme was active in 2015, you would owe an additional 70 percent by now,” he says, because the value of the equity share increases with house prices.

If the new build schemes were genuinely affordable, it would be different because the homeowner would be more likely to be able to refinance the equity part, says Reynolds. “Where purchase prices are full market prices, it is just too high.”

If a person can afford to buy an existing home without using this scheme, it would be better for them, even if the home needs some work, he says. “It is going to be 20 percent cheaper, you will own it outright and with none of the risks and restrictions.”