Mortgage-to-rent scheme changes hugely significant
Analysis: Private finance will speed up transfer of troubled loans into rental scheme
Minister for Housing Simon Coveney: the changes outlined by him do not herald a huge overhaul of how the scheme operates with individual families. Photograph: Alan Betson
Most of those in mortgage difficulty who want to avail of the mortgage-to-rent scheme would notice little difference, on the surface, between the scheme as it was originally constructed and its new iteration.
The changes as outlined by Minister for Housing Simon Coveney and Damien English, the Minister of State in his department, are hugely significant but do not herald a huge overhaul of how the scheme operates with individual families.
By allowing private finance houses to bulk buy mortgages and lease them back to the State, the changes being trialled by the Government are more backroom in nature.
If they work as intended, the changes will significantly increase the take-up of mortgage to rent, with Government sources suggesting the number of homes completing the process would increase from its current level of just above 200 to several thousand.
A consequence of the greater participation of private finance will be also be a much speedier process in transferring troubled mortgages to long-term mortgage to rents.
Mr Coveney has estimated the process could be halved from its existing 18 month timeframe to less than nine months.
Further changes include amendments to the qualifying criteria for the scheme, with the price threshold for a qualifying house in counties Cork, Dublin, Galway, Kildare, Louth, Meath and Wicklow increased to €365,000, with the corresponding figure for an apartment or townhouse increased to €310,000, from €350,000 and €300,000 respectively.
The rest of the country will see the thresholds rise to €280,000 and €210,000 from €250,000 and €190,000. These prices equate to the value the State puts on social housing stock.
It is also expected that the State will promote the revamped scheme aggressively to ensure increased take-up.
Yet the process of qualifying for mortgage to rent remains largely the same. Those in mortgage difficulty will still have to engage with their lender under the Central Bank’s code of conduct on mortgage arrears, which sets out the framework that lenders must use when dealing with borrowers in difficulty.
This stipulates the borrower must engage with the lender and follow the four steps of the mortgage arrears resolution process: communication, financial information, assessment and resolution.
During this process, the bank can currently offer mortgage to rent as an option. However, the existing scheme has been criticised because it meant holders of distressed mortgages were dealt with on a one-on-one basis, and was thus not attractive for private finance to become involved. The current scheme is administered by housing bodies and county councils only.
In order to qualify, a family must also be eligible for social housing support – but they do not have to be on a social housing list. The property must also meet the appropriate standards for social housing.
Those who are entitled to social housing must have a net household income below a certain limit, depending on the area of the country in which they live, and must not have other property or assets valued over €20,000.
This will remain unchanged. It is envisaged, however, that banks will be much more proactive in offering mortgage to rent as an option because they will be able to sell troubled loans in bulk to private finance houses, who will then lease the homes back to the State.
The initial scheme saw homeowners voluntarily surrender their property to their lender who, in turn, sells the property to an associated housing body.
The cumbersome nature of this approach turned many banks off, but selling off batches of loans in tens or hundreds is seen as much more viable.
However, it is stressed that the decision to enter the scheme would be a matter for the homeowner. Those who express an interest but who do not qualify would have the reasons for the refusal explained to them by the bank.
The terms and protections available to tenants under the revised plan will be the same as before. They will be offered a 20-year lease with an option for a further 20, as well as the opportunity to buy back the property at the market rate at any time they choose.
The rent will be paid in the exact same way as social housing, and will be based on the system of differential rents.
This means the rent is based on ability to pay, with the rent increasing if the household income increases. Each council operates its own such rental scheme.