Mortgage to rent scheme will help some in arrears

LOW-INCOME holders of hopelessly distressed mortgages will have the opportunity of becoming renters of their own homes under a new scheme announced yesterday by Minister of State for Housing Jan O’Sullivan.

The mortgage-to-rent scheme will allow families to remain in their home but they will have to relinquish ownership.

The ownership of the house will be transferred to a housing agency which will purchase the home at the market rate (irrespective of what the house originally cost).

The transaction will be financed by a 70 per cent loan from the original mortgage lender and the remainder will come from the State, which will take a 30 per cent equity stake in the house. The householder will have to come to some arrangement with their mortgage provider over the negative equity sum – the difference between the current value and the higher price for which the property was bought. The new personal insolvency legislation may address this issue and the various arrangements that can be brokered between householders and banks.

A pilot project launched earlier this year has already been availed of by 60 families throughout the country. There is an upper limit to the market value of the house – €220,000 for the capital and €180,000 elsewhere.

Those who can avail of it are low-income families who otherwise would have qualified for social or local authority housing. The maximum allowable net household income is €35,000 per annum and the householder must not own any other property or have assets worth more than €20,000.

Ms O’Sullivan said yesterday the scheme will help more than 100 families this year and could eventually be geared up to help several thousand. She and her officials emphasised the “humane” aspect of the scheme in that families do not have to leave their homes.

A budget of €4.5 million has been allocated this year with the prospect of more next year.

Ms O’Sullivan accepted this would only help a small fraction of the estimated 100,000 households in mortgage arrears. She said it was one of the measures being introduced in the context of the wider personal insolvency legislation, which will be launched today.

She said she was very conscious the State had limited funds but hoped the scheme could be extended. Ms O’Sullivan referred to some families being caught in a “perfect storm” in relation to mortgage repayments. “They purchased when prices were much higher and, in many cases, the family income that made the repayments possible has dropped significantly, often through the loss of one or more wage packet.”

Yesterday’s announcement was the first part of a major Government initiative on personal insolvency. The biggest part will be unveiled later today, principally through publication by Minister for Justice Alan Shatter of the 200-page Personal Insolvency Bill.

The legislation will reduce the terms before a bankruptcy can be discharged from 12 years to three. It will also provide other solutions to help homeowners deal with unmanageable mortgage debt.

MAIN POINTS

Maximum value of property: €220,000 in Dublin; €180,000 elsewhere;

Maximum allowable net household income: €35,000; house bought by housing association or authority for market value; loan financed by lender (70 per cent) and State (30 per cent); homeowner makes arrangement with bank on negative equity;

Overall budget 2012: €4.5m;

Pilot scheme: Dublin, 19 houses; rest of country, 41