The recent announcement by the Government of an expansion of the mortgage-to-rent scheme is an important development for households in long-term and unsustainable mortgage arrears.
The Government’s Action Plan for Housing and Homelessness published in July 2016 identified the requirement to improve the mortgage-to-rent scheme so that it would allow more people to remain in their homes. There are a number of documented reasons for the low rate of uptake and progress on the mortgage-to-rent scheme which include the multitude of stakeholders and an overly bureaucratic process. The conversion rate since its launch has been very poor – only 217 arrangements completed with a further 635 pending.
However it is generally accepted that the rationale for the mortgage-to-rent model is sound – it allows households with unsustainable mortgages to achieve certainty of occupancy (tenure) through a long term leasing arrangement.
The most significant changes to the mortgage-to-rent scheme announced by the Government are:
- Implementation of a more centralised approach which can deliver the volumes necessary (expected to be in the thousands) to meet commercial and social requirements;
- Inclusion of a buy-back option for the household which can be triggered at any time; and
- Broadening of the eligibility criteria.
It is anticipated that these changes and a more streamlined administration will lead to more households entering mortgage-to-rent arrangements.
Operation of the Expanded Scheme
- Private finance houses will examine the loan books of banks/funds to determine the accounts that qualify for the expanded scheme.
- Eligible households will be advised of the availability of the expanded scheme and will be given the opportunity to participate.
- Access to independent legal and financial advice will be provided.
- The loans, security and related rights of eligible households will be acquired by a private finance house from participating banks/funds.
- Eligible households will remain in their homes as tenants with a guaranteed 20-year lease and a right of renewal.
- Households will have an option to buy the property back at any time at the prevailing market rate.
- The existing mortgage on the property will be discharged and the residual debt owed will be written off by the private finance house.
To qualify for the scheme households must meet the existing criteria for social housing. The property will also be assessed to determine if it meets the appropriate standards for social housing and if it is appropriate for the needs of the household.
The price thresholds for qualifying properties have increased. For properties in counties Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow the thresholds will be €365,000 for a house and €310,000 for an apartment/townhouse. Properties in other counties will have price thresholds of €280,000 for a house and €210,000 for an apartment/townhouse.
McDowell Purcell has been working closely with a finance house from the inception stage of the proposed expansion to the scheme. The confirmation of Government support is a very welcome development and it represents a further significant milestone on the way to realising the full potential of the mortgage-to-rent scheme.