Cutting through the red tape on mortgage-to-rent
Revamped scheme to help home-owners in arrears might just work, says Sinead Ryan
On the surface of it, the Mortgage-to-Rent (MTR) scheme seemed an ideal solution to the home-owners in arrears crisis; repossession only puts a family out on the street, adding to the homeless problem. Better to stay put, have the bank take the property and rent it back to you as a tenant. The neighbours are none the wiser and the kids get to stay in the same school.
It should have worked, but of the 3,575 eligible cases over the course of the five-year pilot, just 217 went ahead.
Why? Well it was ridiculously complicated, had far too much red tape and the eligibility criteria made it virtually impossible to qualify.
With a stubborn 30,000 mortgages more than two years in arrears, these 'basket case' loans are the hardest to sort. It's not enough to extend the mortgage term or drop the interest rate. These are the people that shouldn't be home-owners any more but tenants under an affordable scheme. But why would they when the debt will simply follow them around for life?
The new improved MTR has now been announced, and this time it might actually work. Mortgage campaigner David Hall has set up one of the approved housing agencies managing it, with AIB funding, and he says the difference is that while there are strict criteria, it's a lot easier than before and the ball is in the borrower's court, not the bank's.
Most importantly, the debt gets written off.
How it Works
- The house must be valued under a certain amount. For Dublin, it's €365,000 and €280,000 in Cork, for instance. Your income cannot exceed a set amount - €42,000 for Dubliners, less elsewhere and you can't have more than €20,000 in other assets (including the house equity). The house must be 'suitable' for your family needs. This means a family of three doesn't get to keep a five-bed mansion.
- You contact the housing agency (whether it's iCare or the others coming on stream, such as Arizun or Merrion Capital) and are assigned someone to complete a financial statement and agree the amount of rent to be paid.
- You voluntarily give up your home to the bank, who in turn, sells it at a discounted rate to the housing body. Your rent is means-tested based on your income as a local authority tenant based on a 28 year lease. Your residual debt is written off.
- If you recover financially, you can buy back your home under strict conditions.
What's in it for the bank?
Banks aren't charities, so why would they agree? Well, they don't want to be landlords either and chasing hopeless debt is fruitless and expensive. If a property is in negative equity, selling it also presents a cost, but this way it's a controlled sale to a known entity. Plus, it's better PR than having a vulture fund turf a customer out.
How is it funded?
iCare is non-profit, with €100m in funding, buying the eligible properties at a heavy discount via ordinary commercial lending, Government-funded aid at low interest rates, with the local authority stumping up to 92pc of the rent stream via its normal housing support system.
Will it Work?
It might. Hall is enthusiastic, but realistic. "The biggest risk is a rise in house prices," he says. This is because of the maximum house value of €365,000. In Dublin, that's not much. If the house is worth €400,000 through no fault of the borrower, they automatically make themselves ineligible. However, if the housing agency does a haircut deal to buy for €365,000, then it can go ahead.
Where can I find out more?
The table shows a worked example and gives some links to sites offering information. Talk to your bank first.
Example of mortgage-to-rent
House Value: €300,000
Mortgage, including arrears: €240,000
Household income: €34,000pa
House voluntarily surrendered to Bank and re-purchased by Housing Agency for say, €190,000.
Owner becomes tenant of housing agency, with rent assessed on income, and pays, e.g. €60pw under HAP or other local authority scheme for up to 28 years. Remaining debt written off. House can be re-purchased under strict conditions in future, but not re-sold.
Helpful Websites: www.keepingyouryome.ie, from MABS. www.backontrack.ie (Insolvency Service of Ireland). www.aib.ie/icare-housing (also call 1800 200 811).