Mortgage-to-rent scheme ‘all but unworkable’

The Government’s much vaunted mortgage-to-rent scheme to aid distressed home owners is in crisis as Ireland’s four main lending institutions say it is all but unworkable.

Their response to the scheme comes as banks step up efforts to pursue mortgage holders in default, with up to 30,000 homes already in the process of being repossessed.

Permanent TSB expects to repossess between 2,000 and 4,000 homes while AIB has more than 9,000 customers subject to legal proceedings.

All the pillar banks claim the process involved in the scheme is cumbersome and unwieldy.

“There is a broad number of stakeholders involved, including 30 local authorities,” Liam McLoughlin, chief executive of Bank of Ireland’s retail division, told members of the Oireachtas Finance Committee last week.

“There are difficulties with the process because it takes too long. Some of the cases are in the process for 12 to 18 months which is unacceptably long. We are participating in talks with the housing authority and we are keen to see those progress to a resolution as quick as possible. There are probably too many players involved.”

His view was echoed by Shane O’Sullivan, managing director of asset management at Permanent TSB.

“There are many that we would like to complete,” he said. “Our perspective is that the system needs an overhaul to enable mortgage-to-rent to become a solution at scale. The process is fraught.

“There are a great number of parties involved, from the borrower to the lender to the housing agency, the housing bodies to the local authorities, so it is a cumbersome process that clearly needs streamlining.”

Mr O’Sullivan described the scheme’s criteria as out of date. “It made sense at a certain point in time but, for instance, properties that are over the value of €220,000 in Dublin at present are excluded and there are issues around income thresholds. There is also a fundamental problem with the valuations and that needs to be rectified.The funding and the resourcing of the scheme need to be looked at as well.”

Simon Brooke, head of policy at Clúid, the not-for-profit housing association that has secured most mortgage-to-rent agreements, says the scheme has great potential but is not delivering.

“The scheme is not a panacea, but it works extremely well for some people and has the capacity to change people’s lives by enabling them to live in their own home and retain links with their own community,” he said.

“The people who have become our tenants are full of praise for the scheme. They are delighted to be able to continue to live in their own home without having the threat of eviction hanging over them.

“It is one of the different mechanisms to deal with distressed mortgages that should be producing significant numbers, but it isn’t. The Government planned for 500 mortgage-to-rent completions over seven years, but, two-and-a-half years on, we have done 33 and the total number is 39. That is appalling.”

The Housing Agency administers the scheme on behalf of the Government and concedes that the process takes time. However, it insists this is because of the complexities involved and the fact that there is a cooling off period to ensure the householder fully understands the implications.

“This is a significant decision for the household and they must be given the time and space to make this decision, said John O’Connor, the agency’s chief executive.

“The funding for the purchase of the property is effectively being provided by the State, which involves significant investment. Time needs to be allowed to ensure that both the household and the property are suitable for inclusion in the scheme. This involves the household being assessed for social housing support and a condition survey and valuation being carried out on the property.

Mr O’Connor said the scheme is now beginning to show results.

“A number of lenders are actively engaged in the mortgage-to-rent scheme, bringing cases to a successful conclusion and agree purchases with housing associations. Where the banks actively engage, there is more success. Full and genuine engagement of all involved in the scheme is necessary to ensure its success.”

Simon Brookes of Clúid is less optimistic. “I used to take a more positive view of the scheme and felt that it would take off any time now, but I no longer believe that.”

He said there was “every possibility” of the scheme failing altogether, mostly because of the less than enthusiastic support coming from Ireland’s four main banks.

“Of the 33 cases that we have completed, we have closed all but four with subprime lenders. The pillar banks say the scheme is cumbersome and difficult to operate but it can be made to work.

“If the main banks are serious about looking after their customers, it behoves them to support the mortgage-to-rent scheme because the alternative is repossession. If the subprime lenders can work it, why can’t they?”

How it works:

To qualify for the mortgage-to-rent scheme:

*You must be involved in the mortgage arrears resolution process with your lender and agree that you can no longer afford to pay your mortgage loan now or in the future.

*You must own the property you live in, with a current market value of less than €220,000 in the Dublin area or less than €180,000 in the rest of the country.

*Your property must be in good condition, be in a suitable location, and must suit your needs.

*You must not own any other property or have assets in excess of €20,000.

*Your net household income must not exceed €25,000, €30,000, or €35,000 a year, depending on what part of the country you live in.

*You must have a long-term right to remain in Ireland.

How does it work?

*You voluntarily surrender possession of your home to your mortgage lender who immediately sells it to a housing association who will then rent it to you.

*You will no longer own your property but you can continue living in your home as a social housing tenant and have a tenancy agreement with the housing association.