Mortgage-to-rent scheme faces ‘cultural resistance’

A “strong cultural resistance” from some local authorities and lenders is causing the mortgage-to-rent scheme to “struggle”, the Department of the Environment has been warned.

Under the scheme, distressed borrowers hand back their home to their lender, which sells it on to an approved housing body which then lets it back to the borrower on behalf of the local authority.

It is one of a number of measures the Government hopes will play a significant role in resolving the mortgage arrears crisis .

However, correspondence between the department’s working group on mortgage arrears and stakeholders, obtained under Freedom of Information legislation, reveals concerns that some local authorities and lenders are preferring not to participate in it.

Problems with the funding model for the scheme are also flagged.

According to Noel Brett, chief executive of the Banking and Payments Federation Ireland, this "will only lead to disappointment for distressed borrowers".

‘Queue jumpers’

The federation and Clúid, the largest voluntary housing organisation in the State, have separately written to the working group outlining why they believe so few distressed borrowers are accessing the scheme.

In an email to the working group, dated November 11th, 2014, Clúid chief executive Brian O’Gorman said “part of the reason the scheme has struggled is that it has encountered strong cultural resistance on the part of local authorities and lenders”.

He said some local authorities saw applicants for the scheme as “queue jumpers” on the social housing list who were “deemed to be currently adequately housed”.

Meanwhile, he said lenders viewed the scheme as a form of “debt forgiveness” and “counter to the banking instincts”.

Figures from the Housing Agency show seven local authorities have not processed a single mortgage-to-rent application since the scheme was established three years ago, while the four main banks have completed 19 per cent of the total applications they have been submitted.

Up to the end of last week, 2,984 cases of borrowers in severe mortgage arrears had been put forward for the scheme.

Sale agreed

Of these, 110, or about three per cent, have been completed. Some 533 cases are active in the scheme, 119 are at sale-agreed stage and 81 are ‘under offer’ with the lender.

Of the completed cases, two sub-prime lenders have completed 73 per cent of them.

Pepper Asset Services has completed 70 and Start Mortgages 11. Of the main banks, Bank of Ireland has completed eight, AIB/EBS has completed five, PTSB has processed eight and Ulster Bank none. KBC Ireland has completed five and Stepstone three.