It is good to be back in the Seanad again.
I thank the Senator for raising this issue. It is important to bring clarity. Like many schemes, people do not always know about them until they go looking for them. In our offices people have asked about them in the past and we pointed them in the right direction. Generally, if someone wants a loan through this mechanism, they will find out about it. However, I understand what the Senator is saying about promoting the scheme also.
The home choice loan is a Government-backed mortgage for first-time buyers introduced in 2009. It was introduced as a temporary loan offering from local authorities. It was designed to facilitate those in creditworthy households wishing to purchase or build new homes or purchase second-hand homes who had been affected by the credit conditions in the mortgage market. As the Senator said, it can also be used to build a home on land owned by individuals.
It is available nationwide through mortgage brokers who are included in a designated panel compiled by the Housing Agency. The loans are made available and administered by four lead local authorities on behalf of all local authorities - Dublin City Council, Cork City Council, Kilkenny County Council and Galway County Council. A dedicated website, www.homechoiceloan.ie, gives full details of the scheme.
To support local authorities in operating home choice loans in a consistent and efficient manner, the Housing Agency provides a central service for them. This shared central service processes loan applications, carries out credit checks and issues a recommendation to the local authority on each loan application in accordance with the credit policy. The final decision on loan approval is a matter for the relevant local authority and its credit committee on a case by case basis.
The loan is available to first-time buyers who can prove that they have been refused a loan by two financial institutions. It provides up to 92% of the market value of a property purchased to a maximum loan amount of €285,000. The loan is a normal capital and interest bearing mortgage. It is offered at a single, competitive variable interest rate, currently set at 3.25%. Since the home choice loan scheme commenced in 2009, 21 home choice loans have been issued with a total value of more than €3.9 million.
Local authorities can offer another type of product to first-time buyers. In accordance with the Housing (Local Authority Loans) Regulations 2012, local authorities can offer eligible first-time buyers a local authority standard variable rate annuity mortgage loan directly, which offers a rate of 2.55%. Like the home choice loan, this loan type is only available to individuals who have been refused a mortgage loan by two other lenders. The annuity mortgage scheme has a lower loan limit, lower income thresholds and lower interest rates but a higher loan-to-value, LTV, ratio of 97% compared with the home choice loan ratio of 92%. In addition, the standard annuity mortgage is available and administered directly by local authorities. Almost 1,100 of these loans have been provided by local authorities since 2009 when the current product was introduced, totalling €87 million.
When the home choice loan and standard mortgage loans were introduced, careful attention was given to the terms and conditions that should be applied. It was set against the background of the experience of previous mortgage lending by local authorities, under which the current level of arrears is running at approximately three times that of the private mortgage sector, presenting challenges for the home owners and lending local authorities concerned, and liberal mortgage lending by the private banking sector in the years running up to the economic collapse in 2008. Therefore, the regulations underpinning the home choice loan and the standard annuity product provided for the first time for the development of a statutory credit policy that would govern any lending under the scheme. Decisions on all loan applications must be made in accordance with this statutory credit policy to ensure lending prudence and to assist authorities across the sector to engage consistently in responsible mortgage lending in the best interests of borrowers and local authorities as lenders.
My ministerial colleague, Deputy Simon Coveney, and I will continue to keep the home choice loan scheme under review and would welcome whatever suggestions Senators might have as to how the product might be better publicised. To some extent, however, what we are seeing in terms of the home choice loan is a mirror image of what is happening in the private housing market in which there is a misalignment between house prices and the capacity of first-time borrowers to raise sufficient cash deposits to meet prudent financial rules that are intended to safeguard the borrower into the future. In this context, the Senator will know that the Government has made its intentions clear in increasing the supply of affordable houses for first-time buyers into the market. The Minister and I are committed to ensuring the ambition of Rebuilding Ireland - an Action Plan for Housing and Homelessness is achieved. The full intention is to work with all stakeholders to make houses more affordable. Announcements in the budget in two weeks' time will help to address this issue. It is a question of supply and demand and having a product people can afford.
I do not have information on the number of applications, but it looks like people are, for whatever reason, not choosing this product. However, there have been more than 1,400 council loans. People are aware of the former, but they are choosing the latter route. It could have to do with the LTV ratio.