Minister for Housing and Planning, Ms. Jan O’Sullivan T.D announces first Transaction under the Mortgage to Rent scheme
07/02/12
Minister for Housing and Planning, Ms. Jan O’Sullivan T.D announces first Transaction under the Mortgage to Rent scheme
Ms. Jan O’Sullivan T.D., Minister for Housing and Planning, today (7 February, 2012) announced
the first transaction under the scheme has taken place. It involves the purchase of a house in the Dublin city area by Cluid from a lender to whom the family will have voluntarily surrendered their property. The family in question have received a last minute reprieve – they had been due to move out of their home a couple of weeks ago. “My Department and New Beginning became involved along with Cluid and the lender in question very helpfully agreed to give a further period to allow a mortgage to rent process to be put in place. I’m delighted to say that this has now happened,”
The household have been made an offer to remain in their home as social housing tenants. They had built up significant arrears, had reached the end of the judicial repossession process, had been about to surrender their property and vacate. “Since coming to the Planning and Housing job, I’ve been very anxious to see the mortgage to rent scheme get underway, and this case presented an opportunity to help a family in difficulty circumstances, and try to work through the first mortgage-to-rent household.
The lender in this case was very pro-active in working with us also and I am very pleased to say now that a process has been developed which has been shown to work. We have retrieved a very difficult situation for a particularly hard pressed family who had run out of options. Their mortgage position was clearly unsustainable and in the absence of an intervention like this their options would have been extremely limited. I hope now we can work with other lenders on further testing the scheme in the short term before rolling it out nationally in the coming months,” added Minister O’Sullivan
The transaction will be funded through a mix of loan finance drawn down by Cluid from the Housing Finance Agency and an equity injection from the Department of the Environment, Community & Local Government. This structure is one that has already been used to fund the delivery of other social housing projects.
In other cases the loan finance element will be provided by the initial mortgage lender. The Department is also working with AIB on the pilot project involving certain eligible households who hold mortgages with AIB. In these cases AIB will make loan finance available to Cluid. I would see this being the normal arrangement under the national scheme.
“I am keen to assist as many households as possible. I am working with my colleagues in Government, particularly the Minister for Social and Family Affairs, to develop a clear picture of possible eligibility. There are obviously tens of thousands of households in arrears but the mortgage to rent scheme would really only be intended to target a much smaller subset of that category.” Given the extent of the adjustments already applied to the social housing budget we need to very carefully target all interventions at the most vulnerable and disadvantaged households. Mortgage to rent is just one part of the government’s response to the mortgage arrears issue, and it will suit only a particular group of households in difficulty.
Any residual debt will fall to be dealt with on a case by case basis between the borrower and lender. The Department has no role in that regard.
“For some months now my Department has been working with AIB, Cluid and the Housing Agency. We have developed a robust process, a detailed customer guide for prospective participating households and developed the framework for lending by AIB to Cluid. I understand that prospective participants have been identified by AIB and that these will be contacted in the coming days under the Mortgage Arrears Resolution Process set out in the Central Bank’s Code of Conduct on Mortgage Arrears. As part of the MARP discussion AIB will explore the possibility of the mortgage to rent scheme specifically but ultimately it will be a matter for the households in question to decide – in their own time – whether they wish to participate. It is hoped that the pilot scheme will available from the second quarter of this year.”
While the target households are those whose mortgage position is difficult, the decision to participate in a scheme like this is a significant one. It is of course a positive that they remain in the family home but they will no longer be homeowners.
ENDS
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Note to editors
What is mortgage to rent
Mortgage to Rent is a way of helping certain struggling mortgage holders remain in the family home as social housing tenants. They go from owning their home to renting it with an approved housing body or housing association becoming their landlord.
How does it work
Under the scheme an eligible household voluntarily surrenders ownership of their home to their mortgage lender. A voluntary housing association buys the home from the lender. The family continues to live in it as a social housing tenant. They pay a rent based on their income. They no longer own the home or have any financial interest in it.
Who will be eligible
To qualify for Mortgage to Rent:
• You must agree with your lender that you can no longer afford your mortgage payments and that this is unlikely to change in the future.
• You must qualify for social housing support from your local authority.
• To qualify, you must make an application for social housing support to your local authority.
• Your home must be valued at less than €220,000.
• Your home must be suitable for your needs.
What is the background to the scheme
As part of the implementation of the recommendations in the Keane Report my Department is developing a mortgage to rent scheme on a pilot basis. This work has been assisted by Clúid Housing Association, a number of local authorities, the Housing and Sustainable Communities Agency, AIB, and more recently, New Beginning and another lender.
The Keane reported recommended 2 such schemes or models on which a mortgage to rent option might operate.
The same categories of household would be targeted under each scheme. These are households that:
• have had their mortgage position deemed unsustainable under a Mortgage Arrears Resolution Process (as provided for under the Central Bank’s Code of Conduct on Mortgage Arrears);
• agree to the voluntary repossession of their home;
• do not have significant positive equity, and;
• are eligible for social housing.
In addition, the house must also be appropriate to household need. In other words, the household are not significantly over-accommodated (e.g. a couple residing in a home that is too large for their needs) or under-accommodated/overcrowded. Households availing of the scheme will become social housing tenants, paying a differential rent calculated on the basis of household income.
The essential difference between the 2 options relates to ownership of the property after the voluntary repossession has taken place.
Under the first model, after voluntary repossession has taken place the property would be purchased by an approved housing body at current market value. The household would become a social housing tenant – they would no longer be homeowners.
The purchase of the property would be part loan financed (using loan finance generally obtained from the initial mortgage provider) and the Exchequer. My Department is also consulting with the Central Bank to ensure that the process through which households might be offered the option to participate in the scheme complies fully with all existing consumer protection and other regulatory requirements.
Under the second model, the lender would become the long term owner of the property after voluntary repossession had taken place. The household would become a social housing tenant of the relevant local authority and the local authority would, in turn, lease the property from the financial institution for the period of the lease. The household would enjoy the same benefits as any household already accommodated under the social housing leasing initiative in terms of security of tenure, differential rents, eligibility etc.
Ultimately, the schemes will be rolled out nationally using the criteria set out above and it is hoped that all lenders will agree to participate.
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