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Ireland - How Affordable Are Affordable Homes?...

Homes at a discount - but are they still a good buy?


2008 Review: AFFORDABLE HOMES: There are lots of apartments and houses for sale under the Government's Affordable Homes schemes, writes Frances O'Rourke

AOIFE MACMAHON had been renting for years when she applied to DĂșn Laoghaire-Rathdown County Council (DLRCOCO) for an affordable house in November 2005. "The property market was at its peak and my mum urged me to apply. A couple of weeks later I got a letter saying I was number 168 on the list."

After that, Aoife - a single 36-year-old media buyer with an income under the €58,000 affordable eligibility threshold - forgot about her application. She was happy to go on renting her apartment near the Luas in Dundrum; she had lived there for over five years but buying "was off the radar - apartments cost from €600,000 up" and anyway she had always dreamed of living near the sea. In January 2007 she got a call from the council. "There was a two-bed unit available with my name on it." The apartment was in a development called Olcovar, just beyond the village of Shankill; its market value at the time was €425,000; the affordable price to Aoife was €235,000 - a 45 per cent discount.

"Next day I was interviewed by the council to make sure I could afford mortgage repayments and so on." (She can, but needs to rent out a room - her mortgage repayments are twice the rent she was paying).

The council brought her to see the site where the scheme was being built - "it's lovely, very green, and five to 10 minutes' walk from the sea!" The deal was done: Aoife completed the purchase in August 2007, closed finally just before Christmas a year ago. "It was like winning the lottery, something I thought could never happen to me."

Local authorities around the country provided lucky buyers like Aoife with over 3,500 affordable homes in 2007, under one of the schemes first introduced in 1999 to meet the needs of first-time buyers who were being priced out of the market by the seemingly unstoppable property boom.

The schemes - which give buyers discounts on newly-built homes ranging from 15 to 40 per cent off the open market price, subject to a clawback if they sell it within 20 years - have undergone several changes since then. In 2006 the Affordable Homes Partnership (AHP) was established to speed up delivery of affordable homes and provide information to the public: in the six months to June 2008, 2,059 affordable homes were delivered by local authorities, a rise of 73 per cent on the same period in 2007. The bulk of these homes are in recent private developments- like Beacon Court in Sandyford and St Edmund's in Palmerstown - all over the country.

But the dramatic fall in house prices is affecting the affordable homes market, as a quick look at local authority websites will show: the difference between the market price and the affordable price of homes in a place like Adamstown Square in west Dublin, for example, has narrowed considerably in recent months.

But reports that some affordable homes are dearer than the same homes being sold on the open market have been quashed by the AHP, whose chief executive John O'Connor says: "Our advice to local authorities is to make discounts at least 15 per cent lower than the market price at time of purchase."

One of the big attractions of an affordable home right now is that you can get one from one of the AHP's approved lenders with a 3 per cent deposit. The drawback are clawback provisions (see panel) which could wipe out any price gain if a property is sold, especially within the first 10 years of purchase.

The odds are that a young adult like Aoife buying, say, a two-bed apartment in their twenties or thirties, will want to trade up to a two/three-bedroom house within 10 years if they marry and start a family. The good news is that under the Government's new shared equity scheme, due to be introduced next year, affordable homes buyers may qualify for a second, larger affordable home.

The shared equity scheme - under which the State retains a percentage stake in an affordable home - will replace all existing affordable homes schemes: eligible buyers will still be offered homes at varying discounts, but will have to pay back the equity if they sell (or at the end of a 35-year mortgage term). The legislation for this scheme is currently before the Seanad but it is not likely to be up and running before autumn 2009.

John O'Connor advises buyers of all homes - affordable or not - to think carefully about whether they really want to buy and not just to rush into it. "Often people buying affordable homes don't pay attention to the market price, aren't aware of what's going on in the market."

BUYING AFFORDABLE

What are affordable homes : it is one that you buy at a discount to the market price, to live in. If you sell it within 20 years, you will have to pay back a percentage to the local authority. They are a mix of one to three-bed apartments and two and three-bed houses, mostly in private developments around the country.

To qualify: you must be a first-time buyer, usually with an income of between €25,000 and €58,000 if single and under €75,000 for a couple and be able to make mortgage repayments. Divorced and separated people can also qualify.

How do you apply: you apply to the local authority in the area you want to live in but can apply to as many as you want; applying to a number increases your chances of getting an offer. You can apply to the four Dublin councils for a single €50 fee.

How long before you get an offer? The average time is 17 months.

How are they allocated? Mostly they are offered on a first come, first served basis. Dublin City Council operates a lottery.

How much do they cost? Prices of properties on the affordable homes website currently range from around €127,000 to around €300,000 - but should be averaging 15 to 30 per cent below the market price of the property. They will all cost less than the open market price.

How can I finance it? With a mortgage either from a local authority or from six named lenders - they include EBS and Bank of Ireland. You will be able to borrow up to 97 per cent of the purchase price. You cannot rent out your home but you can rent a room (and get tax relief on the rental income).

What if I want to sell? If you sell within the first 10 years, the local authority will claw back a percentage of the sale price that you got as a discount when you bought your home. If the discount was 30 per cent, the clawback is 30 per cent of the selling price. But if the market value of the home has fallen since you bought it, the percentage discount is based on the difference between the new lower price and the price you paid. If the market value falls to the price you paid, there will be no clawback. After the first 10 years, the clawback reduces by one-tenth for every year - and after 20 years, there is no clawback.



Report from Irish Times.

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