Mortgage bought by a vulture fund? Maybe you can buy it back

A new sale and leaseback initiative has been launched, targeting homeowners with distressed mortgages who want to pay off their mortgage debt but stay in their home.

The company behind the move, Quartech, a Dublin-based funding and wealth management firm, wants to buy properties with distressed loans, then rent them back to their homeowners, giving them the option to repurchase the home after five years.

Co-founder Ben Hoey, a former chief financial officer at Merrill Lynch's Dublin operation, who also spent three years as managing director of Kennedy Wilson's Europe arm, says the goal of the company's new product is to give options to the 20,000 or so borrowers who are significantly behind on their mortgages.

Many of these homeowners will have had their loans sold to private equity or vulture funds, typically at a significant discount – a discount they won’t have benefited from.

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Banks have been stepping up the sale of distressed mortgage books of late, in an effort to spruce up their balance sheets to comply with European guidelines. Most recently, Permanent TSB sold a loan book of more than 10,000 mortgages where borrowers had fallen behind on repayments, to Start,which is backed by US private equity group Lone Star.

The new initiative follows others in the sector, such as iCare, which aims to help families who are eligible for social housing and in mortgage arrears to stay in their home.

Under its sale and leaseback solution, Quartech will purchase a customer’s home for 70 per cent of the property’s value. The owner can then use these funds to come to an agreement with their lender and exit the mortgage. The former homeowner will then rent their home back from Quartech for up to five years, at which point they may be in a position to re-purchase it, at a 20 per cent discount on the current price.

“It’s very important to us that they have an interest in the house, which is why there’s a discount,” Mr Hoey said, adding “our structure drives the right behaviour”.

Mr Hoey said they will target a gross rental yield of about 6 per cent on the rental deal, but this will be dependent on each client.

“The only people it won’t suit are the people who are probably in a house they can’t afford and will never be able to afford,” he said.

The product is initially aimed at family homes, rather than the buy-to-let market, and at properties worth upwards of €700,000.

The product is the latest innovation from Quartech, which last year brought its Home Options product to market, offering a “rent now, buy later” option for young people and those with irregular earnings looking to get on to the property ladder. Quartech also offers mortgages to those who can’t access traditional loans because of factors such as residency, income type or age. It provides rent-to-buys for the right candidates, provided they have a minimum deposit of about €150,000.