Mortgage-to-rent scheme to save families’ homes

A scheme to prevent people from losing their homes could see those in mortgage distress paying rent to a housing agency while at the same time meeting bank repayments.

A mortgage-to-rent scheme unveiled yesterday will see 100 families with no hope of paying back their mortgages giving up ownership of their homes and becoming tenants. Their homes will be bought by a housing agency, who will pay for it using 75% funding from the original lender and 25% from the state.

The low-income families will then rent back their homes at a rate based on their income and ability to pay — similar to those living in a local authority house.

But payment of the residual debt, or difference between the original mortgage and current value, will be decided through a “bilateral resolution between the borrower and lender”, according to Housing Minister Jan O’Sullivan.

This means the banks can force the home-owner to pay back the mortgage while also paying rent.

“It is not a matter for the state. That is between the borrower and the lender,” she said.

The scheme will help people out of “impossible situation”, according to Ms O’Sullivan. “We would expect the lending institutions to be realistic, but we can’t prescribe what exactly will happen,” she said.

In order to be eligible, the household income has to be between €25,000 and €35,000 a year and the value of the property must be less than €220,000 in the Dublin area and €180,000 everywhere else.

Sixty families have already taken part in a pilot of the scheme, but the Department does not know what portion of these involved the lender writing off the residual debt, because arrangements with banks are confidential.

It is expected 100 families will take part this year and the minister said it could potentially go to thousands.

Ms O’Sullivan said the scheme will be “the only way out” for many families who will be given “security and certainty”. It forms part of a number of initiatives announced by the Government this week to address the mortgage arrears crisis.

Meanwhile, Ms O’Sullivan will be joined by Justice Minister Alan Shatter and Finance Minister Michael Noonan to publish the long-awaited Personal Insolvency Bill today. The bill proposes to cut the bankruptcy period from 12 to three years and allow for voluntary debt-settlement systems outside of formal court insolvency.

Yesterday Mr Noonan urged people to buy their first home in the coming months by saying the mortgage interest relief incentive would not be extended beyond Dec 2012. Under the initiative, first-time buyers who purchase a home before the end of the year will receive interest relief at 25% for seven years.