Mortgage-to-rent scheme fails to tempt distressed homeowners – The Irish Times

It was first introduced in 2012 but, some 10 years later, a government-backed scheme aimed at helping struggling borrowers stay in their homes has seen limited uptake.

Despite recent improvements, the numbers benefiting from the rental mortgage scheme remain low. What’s going on?

Not that mortgage delinquencies are no longer a significant problem. The latest figures from the Central Bank (for December 2021) show that around 47,062 homes were in default at the end of 2021. Of these, 5,406 were more than 10 years in arrears and another 8,961 between five and 10 years.

A recent document from the Competition and Consumer Protection Commission (CCPC) found that long-term arrears of more than two years were becoming “an increasingly dominant subgroup” as it called for a review of the recovery process.

Against a backdrop of rising inflation and a cost of living crisis, Brokers Ireland recently called for new measures to deal with arrears, amid fears that more people will fall behind on their mortgages.

A landlord is exchanging his mortgage for a monthly rent. He can put an end to years of stress and uncertainty, as well as the fear of losing your home altogether.

One such option that already exists is mortgage-for-rent, a government scheme intended to allow people who have accumulated unsustainable long-term mortgage arrears to stay in their homes by going from owning to renting their property.

Administered by the Housing Agency, it is one of several options for people who have been involved in the Mortgage Arrears Resolution Process with your lender, and whose mortgage has been determined to be unsustainable.

By availing the plan, the owner relinquishes ownership of the property and voluntarily relinquishes it to the lender. The house can then be sold to an approved housing agency or non-profit organization like iCare or a private company like Home for Life. The previous owner rents the property at an affordable rate based on their income.

A landlord is exchanging his mortgage for a monthly rent. He can put an end to years of stress and uncertainty, as well as the fear of losing your home altogether. Paul Cunningham, CEO of Home for Life, says it’s suitable for people with “low income, their long-term unsustainable situation doesn’t look good, and they have negative net worth.”

Despite the rise in home prices over the last decade, many of these properties will continue to have negative equity due to the accumulation of arrears.

And what do the owners get?

“A buyback option, security of tenure with your local authority and a very reasonable rent based on income,” he says.

Rent is set at about 15 percent of net disposable income. If the mortgage applicant’s income for rental increases, the rent also increases, but if the income decreases, so does the rent. Repairs are the responsibility of the approved housing agency or other owner.

The applicant’s debt is fully forgiven and succession rights may be available for the social housing lease.

“For some people, it works fine. You no longer own the property, but there is a theoretical right to buy in the future, although it is too early to say how that will work,” says Paul Joyce, senior policy analyst at Free Legal Advice Centers (Flac).

With Home for Life, for example, there is the option to buy back the house after five years. While this right to buy is an important option, it won’t be a realistic option for many, although Cunningham says that a Home for Life tenant has in fact bought back the house from him.

Leases are not for life, but last between 25 and 30 years. As Joyce points out, one question then is what happens at the end of the 25-year lease?

“The question is whether those houses will ever become part of the state’s housing stock,” he asks.

There is also the question of what happens to the tenant. According to the plan, the applicant for the rental mortgage becomes a tenant of social housing. This means that they are entitled to have their housing needs met by the local authority indefinitely (as long as they remain eligible).

However, that does not necessarily mean that they stay in their original home. Cunningham hopes that at the end of the roughly 25-year term, the lease will be extended and continue into the future, but admits “there’s no certainty on that.”

There is a possibility that a tenant may have to move to alternative social housing at that time.

Despite the continued high number of homeowners in default, there has been a relatively low level of acceptance.

“The numbers are comparatively low,” says Joyce, noting that the latest figures show fewer than 2,000 rental-mortgage deals since its introduction in 2012.

With some 6,300 applications, “the strike rate is quite low,” he says, at around 32 percent.

The Department’s latest figures show that Pepper has completed the most rental mortgage transactions, with 444, followed by Start (359); PTSB (168); EBS (168); and IBA (65).

There are no signs of an imminent recovery this year. Under the government’s Housing for All strategy, an average of 1,000 homeowners with unsustainable arrears were expected to take advantage of the rental mortgage each year. Last year, some 678 borrowers benefited from the scheme, and Cunningham expects a similar number by 2022, noting that Home for Life will make 500 mortgage-to-rent transactions.

Earlier this year, in an effort to kick-start the scheme, the government announced a change that should make it more eligible for more people. It is believed that up to 7,000 households may now be eligible. For Cunningham, the changes are “very, very welcome.”

When the rental option mortgage began, the properties had to have a negative equity (ie, the market value of the home was less than the outstanding amount of the loan). However, in a context of rising house prices, this was seen as excluding some homeowners from the scheme.

In January, the Minister for Housing, Darragh O’Brien, introduced three positive equity limits. First, homes in urban areas, including Dublin, Cork and Galway, could have a positive equity of up to €35,000 and still qualify. Secondly, a €30,000 limit now applies to a range of other locations, including Co Cork, Limerick City and Waterford City, while a €25,000 limit applies elsewhere.

Joyce says the changes mean it’s now “slightly easier” to qualify for the scheme. The “adjustment is not very significant”, she says, given that before the change there was an informal rule that you could apply for a rental mortgage if the property had a positive equity of around €15,000. So the change just “doubles this margin”.

It also increased the purchase price eligibility thresholds, meaning the threshold rose from €395,000 to €450,000 for a house in Dublin, Cork, Galway and other urban areas (€335,000 for an apartment or townhouse). In the rest of the State, the new thresholds are €345,000 for a house and €230,000 for a flat.

While the providers of the scheme hope that the number of people benefiting from it will increase, the lack of progress since the last government announcement indicates that this is not certain.

Access remains a problem, says Joyce. “If the valuation of the property by the approved housing agency is higher than the positive equity limit, no application is appropriate.”

And there are other issues, including the requirement that an applicant for a rental mortgage must meet the means test to qualify for social housing. “If they have income above that threshold, they wouldn’t get into the process in the first place,” says Joyce.

For Cunningham, it’s more about knowing the scheme that exists. “I would say awareness/promotion of the scheme is where the gap is,” she says.

Case study

Leanne bought her house with her then-partner at the height of the boom in 2007. She was 24 and her partner was 23.

“It was pretty easy to get a mortgage for any couple back then,” she recalls, adding that they moved into the new house the same month their son was born. But then the economy fell apart and so did their relationship. They tried to keep the mortgage going, with Leanne working two jobs, but it wasn’t sustainable and the mortgage fell behind.

“We looked at everything,” he says, but the property had negative equity at the time, with no put option.

“The options were very limited,” he says, adding that he feared losing his home as his mortgage ended up being sold.

“It was the most exhausting part of my life,” he recalls.

A conversation with Paddy Greene of Debtsolv put her on the path to applying for a rental mortgage with Home for Life.

After living in the house for two years without heat because she couldn’t afford to fix it, once the mortgage-rent deal was complete, Leanne moved back in with everything fixed. The experience, she says, was “very emotional.”

“I was so down and I feel like I have found myself again and I hope one day I can buy the property again so my son will have a permanent home.”

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