'Empty nesters' to be wooed to downsize by new AIB measures

An internal bank document, Housing Supply in Ireland, says the country's biggest lender wants to "help develop a senior housing market in Ireland in order to free up under-utilised family houses".

"AIB is examining various lending and equity release initiatives in order to facilitate home owners to downsize," said the report. "This may include bridging facilitates that will make the process more efficient for those considering to downsize."

At present the bank offers equity release loans whereby a customer has an unencumbered home and wants to borrow against the equity in that home. It also offers top-up loans.

The document also contains the bank's support for Government-backed 'equity loans' which would allow people to borrow money for a large chunk of their deposits.

"The potential advantages are that the Irish Exchequer could recoup the cost of these Help-to-Buy schemes over time. In addition, the schemes could be designed to provide extra help for potential purchasers in the Dublin market, where prices are higher," the report said.

The bank pointed to a UK Government scheme that lends prospective purchasers up to 20pc (up to a maximum of £120,000) of the cost of a newly built home. It requires that the buyers have a 5pc deposit and a 75pc loan-to-value mortgage.

No loan fees or interest rates are charged on the 20pc loan for the first five years of owning the home. For those buying in London, the Government will provide a loan of up to 40pc (up to a maximum of £240,000) of the cost of a newly built home.

An interest rate is applied after five years and that interest rate is index linked. The total amount repayable will be the proportion of the market value of the home that was funded by this loan, plus interest and charges. This scheme is open to all, not just first-time buyers.

The report's author, Pat O'Sullivan, AIB's head of real estate research, said: "There is a segment of the market that do need genuine help. It is not designed to get around the macro prudential rules but it makes it easier to get a deposit together. They still have to have the relevant income and loan to value ratio, etc.

"It's a way of making a cohort of the population that has the capacity to own a home and afford a home to get them on that ladder.

"Three and a half times income should be enough for most people to own a starter home but we've got to understand we've come through 10 years of very slow growth, recession."

Wages have stayed low, while costs have gone up. "We are trying to bridge that gap until we get into some state of equilibrium."

The document also said the bank had developed several new initiatives to help boost housing supply, including a review of its credit policies for the buy-to-let market.

It has also recommended a reform of the tax code for private landlords to further support the buy-to-let sector.

It has also made a number recommendations to support developers and backs a reduction in VAT for a specific period of time. This measure was previously suggested by Fianna Fail but Finance Minister Paschal Donohoe ruled it out in the last Budget.

O'Sullivan admitted it "is not the most palatable of options but it is effective".

He said that while there was a risk the cut would not be passed on, developers ultimately want to sell houses.

"We've tried to identify blockages in the system," said O'Sullivan, who believed that the cost of construction was a key issue.

A cut in the VAT rate to 9pc would cost the Exchequer around €240m.