What is Home Choice Loan
Home Choice Loan is a mortgage for First Time Buyers and is provided by a number of local authorities.

The scheme was introduced by the Irish government in response to the bursting of the property bubble. It is quite simply a state run sub prime mortgage company.

It differs significantly from commercial Sub prime lenders in that the interest rate charged is low. There is one variable rate currently 3.92%. The scheme's website also incorrectly lists a rate of 2.9%, so it might be wise to call and check.

You can borrow up to 92% of the purchase price, to a maximum of €285,000, subject to a number of conditions.

Sub-prime
The scheme is sub-prime in the sense that to qualify, a borrower must have been refused a mortgage by two other lenders.

The combination of sub-prime borrowers, low interest rates, and a still falling housing market means that the scheme would be guaranteed to lose money, were it not for the fact that virtually nobody has taken up mortgages.

The reason sub-prime lenders charge high rates is that they are dealing with buyers who either have a bad credit history, or other reasons to believe that they will be at risk of defaulting.

The higher interest rate means that if some customers default, the profit from other customers can cover any losses.

A dig-out for Fianna Fail's Builder Buddies
The scheme as originally intended only allowed buyers to purchase new homes. Second hand homes or self built houses were ruled out.
It was a fairly transparent attempt to give a "dig out" to large developers, such as the members of the CIF.

In addition to only allowing new builds to be purchased, the scheme also limited the buyers options to houses covered by certain insurance policies that tend to cover larger developers.

Opposition and Changes
A complaint to the European Commission forced the Irish Government to modify the scheme to cover second hand houses, although at this time the scheme still doesn't cover self built houses. This may be a subject of a further challenge.

Positive Negatives Aspects
The scheme has some features to recommend it to borrowers. The low interest rate, the fact that it is interest plus principal meaning buyers are forced to pay down their mortgage, and also the fact that terms are limited to 30 years.

On the other hand the scheme will lend over 7 times a persons salary, and only requires an 8% deposit. While many borrowers consider these positives, as a nation we have learned to our cost that such benefits have a sting in the tail.

Would Irish Home Truths recommend Home Choice Loans?
We strongly opposed the scheme and still do. It is a waste of taxpayers money, it undermines other banks by lending at lower rates to riskier customers.

It is actually possible thanks to this scheme for a person with a bad credit history who has been refused by multiple banks, to borrow money at a lower rate than a customer with an excellent credit history.

However, at IrishHomeTruths.com we pride ourselves on honesty and straight talking, and the truth is that if you can borrow at a lower rate from Home Choice Loans than from other banks then it might be worthwhile.

During the boom potential customers talked up their employment and income prospects to borrow as much as possible. With Home Choice Loans on the scene, it may be worth being brutally honest with your bank, in the hope that you can collect the magic two letters of refusal that will enter you into the low rate world of Home Choice Loans.

A further benefit of Home Choice Loans is that your lender is the government. This government in particular has proven itself to be totally incompetent when it comes to finances. This might be an advantage to you as you do business with them.

It is quite possible that a government would be less willing to evict home owners than a bank. Those who default on home choice loans could well be allowed to continue living in their home on something like a social housing system.

They may even be given a chance at some future date to buy back their home again on favorable terms.

IrishHomeTruths.com has no evidence to suggest that this will be the case, and we are merely speculating based on previous form.

Dangers and caveats
Home Choice Loans is not a risk free proposition. It's interest rate is variable, and ECB rates are almost certain to rise in the relatively near future. Rates are currently about as low as they can go, and as the EU comes out of recession, interest rates will be increased to control the growth.

This is likely to happen at a time when Ireland is still in or very close to recession.