Mortgage-to-rent scheme to keep people with arrears in homes

A new mortgage-to-rent scheme, currently being finalised by the Government and expected to be launched in the coming weeks, will keep thousands of families currently under threat of eviction in their homes, it is expected.

Proponents of the scheme say it could help 30,000-40,000 homeowners whose mortgages are in distress, though Government sources say that the numbers are likely to be more modest.

Under the plan, mortgages that are seriously in arrears will be bought from banks by private investors, typically private equity groups, pension funds or organisations dedicated to helping distressed homeowners, which will partner with financial backers. Six groups have already expressed interest, according to a person involved in the process.

The properties will be leased to local authorities or housing associations who will grant the occupier of the home a 25-30-year tenancy at an agreed rent. The tenant will pay as much of the rent as they can afford, and the State will pay the rest.

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One person familiar with the scheme said that the investors providing the finance would be guaranteed a steady, State-backed return over 30 years, whereas families will be enabled to stay in their homes with the possibility of purchasing them at the end of the tenancy.

Non-performing mortgages

The scheme will also enable the banks to get non-performing mortgages off their books.

People working on the scheme say that the expected average cost to the State per tenant will be €5,600 a year – compared to the cost of housing someone in a hotel, which is about €50,000 a year.

The Department of Housing has been in intensive discussions with a number of stakeholders in recent months, including the Phoenix Project, Home for Life and Merrion Capital, as well as other private finance interests.

If successful, the plan will see a reduction in the numbers of people becoming homeless because their homes are being repossessed, Ministers hope.

In recent weeks, the Government has received word from Eurostat, the official European statistics agency, that the scheme could operate off the State's balance sheet. This has overcome some concerns that the Department of Public Expenditure had about the plans. A detailed study has also been completed by the National Development Finance Agency, which identified significant interest from institutional investors to support such a scheme.

It is expected that expressions of interest will be formally sought from interested parties in the coming weeks and then a number of pilot schemes will be set up, though groups involved in discussions in recent months have indicated an impatience to get the scheme moving.

Final plan

The final plan, which has been stewarded by Minister of State at the Department of Housing Damien English, is expected to be brought to the Cabinet for sign-off in the coming weeks by Minister for Housing Eoghan Murphy. It is part of a series of measures Mr Murphy is bringing forward as the housing crisis worsens and the Government faces political charges of failing to respond adequately.

There is widespread acceptance in Government that the mortgage-to-rent scheme has not worked satisfactorily, having been availed of by only a few hundred homeowners. However, it is hoped that the new scheme will address the situation of people who are “hopelessly” in arrears, sources say.

Proponents of the scheme say it will be targeted at between 30-40,000 homeowners, though Government sources say the scheme will only be open to homeowners who qualify for social housing, and that a more realistic estimate is several thousand.