Numbers availing of mortgage-to-rent scheme remain low. What is going on?

It was first introduced back in 2012 but, some 10 years on, a Government supported scheme, which aims to help distressed borrowers remain in their homes has had limited take-up.

Despite recent enhancements, the numbers availing of the mortgage-to-rent scheme remain low. What is going on?

It is not that mortgage arrears are no longer a significant problem. Latest figures from the Central Bank (for December 2021) show that about 47,062 homes were in arrears as of the end of 2021. Of these, 5,406 had been in arrears for more than 10 years, and another 8,961 for between five and 10 years.

A recent paper from the Competition and Consumer Protection Commission (CCPC) found that long-term arrears of more than two years were becoming “an increasingly dominant subgroup”, as it called for a review of the repossession process.

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Against a background of rising inflation and a cost of living crisis, Brokers Ireland recently called for new measures to deal with arrears, amid fears that more people will fall behind on their mortgage.

One such option that already exists is mortgage-to-rent, a Government scheme aimed at enabling people, who have run up unsustainable long-term mortgage arrears, to remain in their homes by switching from owning to renting their property.

Administered by the Housing Agency, it is one of a number of options for people who have been involved in the Mortgage Arrears Resolution Process with their lender, and whose mortgage has been determined as unsustainable.

By availing of the scheme, a homeowner gives up ownership of the property, voluntarily handing it back to the lender. The home may then be sold to an approved housing body or to a non-profit such as iCare or a private company such as Home for Life, The former homeowner then rents the property at an affordable rate based on their income.

A homeowner is swapping their mortgage for a monthly rent. It can put an end to years of stress and uncertainty — as well as the fear that you may lose your home altogether. Paul Cunningham, chief executive of Home for Life, says it is suitable for people with a “low income, their unsustainable long-term situation doesn’t look good, and they’re in negative equity”.

Despite rising house prices over the past decade or so, many of these properties will still be in negative equity due to the accumulation of arrears.

And what do the homeowners get?

“A buyback option, security of tenure with their local authority, and a very reasonable rent based on income,” he says.

Rent is set at about 15 per cent of net disposable income, If the mortgage-to-rent applicant’s income increases, the rent also increases, but if income falls, then so too does the rent. Repairs are the responsibility of the approved housing body or other owner.

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The applicant’s debt is fully forgiven and there may be succession rights available for the social housing tenancy.

“For some people, it does work out well. You don’t own the property any more but there is a theoretical right to buy in the future — although it’s too early to say how that will work out yet,” says Paul Joyce, a senior policy analyst with Free Legal Advice Centres (Flac).

With Home for Life, for example, there is an option to buy back the home after five years. While this right to buy is an important option, it will not be a realistic option for many, although Cunningham says that one Home for Life tenant has in fact bought back their home.

Tenancies are not for life but they do last for between 25-30 years. As Joyce notes, a question then is what happens at the end of the 25-year lease?

“The issue is around whether those houses will ever become part of the state’s housing stock,” he asks.

There is also the question around what happens to the tenant. Under the scheme, the mortgage-to-rent applicant becomes a social housing tenant. This means that they have a right to have their housing needs met by the local authority indefinitely (as long as they remain eligible).

However, that doesn’t necessarily mean they get to stay in their original home. Cunningham expects that at the end of the 25-year or so term, the lease would be extended and continued into the future, but concedes that “there is no certainty in that”.

There is the possibility that a tenant may have to move into alternative social housing at that point.

Despite the continued high number of homeowners in arrears, there has been a relatively low level of take-up.

“The numbers are comparatively low,” says Joyce, noting that latest figures show fewer than 2,000 mortgage-to-rent deals since their introduction back in 2012.

With some 6,300 applications, “the strike rate is quite low” he says, at about 32 per cent.

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Latest figures from the Department show that Pepper has completed the most mortgage to rent transactions, at 444, followed by Start (359); PTSB (168); EBS (168); and AIB (65).

There is no sign of an imminent pickup this year. Under the Government’s Housing for All strategy, it was expected that an average of 1,000 homeowners with unsustainable arrears would avail of mortgage-to-rent every year. Last year, some 678 borrowers availed of the scheme, and Cunningham expects a similar amount for 2022, noting that Home for Life will do 500 mortgage-to-rent transactions.

Earlier this year, in an effort to kick-start the scheme, the Government announced a change which should make more people eligible to avail of it. It is thought that as many as 7,000 households may now be eligible. For Cunningham, the changes are “very, very welcome”.

When mortgage-to-rent started, properties had to be in negative equity (ie the market value of the home was less than the amount outstanding on the loan). Against a background of rising house prices, however, this was deemed to be excluding some homeowners from the scheme.

In January Minister for Housing Darragh O’Brien introduced three positive equity limits. Firstly, homes in urban areas, including Dublin, Cork and Galway, could be in positive equity of up to €35,000 and still qualify. Secondly, a cap of €30,000 now applies to another range of places, including Co Cork, Limerick city and Waterford city, while a cap of €25,000 applies elsewhere.

Joyce says the changes mean it is now “marginally easier” to qualify for the scheme. The “tweak isn’t very considerable”, he says, given that before the change, there was an informal rule that you could apply for mortgage-to-rent if the property had positive equity of some €15,000. So the change only “doubles this margin”.

It also increased the purchase-price thresholds for eligibility, meaning that the threshold went from €395,000 to 450,000 for a house in Dublin, Cork, Galway and other urban areas (€335,000 for an apartment or town house). In the rest of the State, the new thresholds are €345,000 for a house and €230,000 for an apartment.

While providers of the scheme hope the numbers availing of it increase, the lack of progress since the Government’s latest announcement indicate that this is not certain.

Access remains one issue, says Joyce. “If the valuation of the property by the approved housing body is above the positive equity limit, no application can proceed”.

And there are other issues, including the requirement that the mortgage to rent applicant will need to meet the income means test to qualify for social housing. “If they have earnings that are above that threshold, they wouldn’t get into the process in the first place,” says Joyce.

For Cunningham, it is more about getting knowledge of the scheme out there. “The awareness/promotion of the scheme, I would say, is where the gap is,” he says.

Case study

Leanne bought her home with her then partner back in the peak of the boom in 2007. She was 24, her partner 23.

“It was quite easy to get a mortgage for any couple then,” she recalls, adding that they moved into the new house the same month her son was due. But then the economy fell apart and so did her relationship. They tried to keep the mortgage going, with Leanne working two jobs, but it was not sustainable and the mortgage went into arrears.

“We looked at everything,” she says, but the property was in negative equity at the time, with no option of selling.

“The options were very limited,” she says, adding that she feared losing her home as her mortgage ended up being sold on.

“It was the most draining part of my life,” she recalls.

A conversation with Paddy Greene of Debtsolv put her on the path to a mortgage-to-rent application with Home for Life.

After having lived in the house for two years with no heating because she could not afford to get it fixed, once the mortgage-to-rent deal was completed, Leanne moved back in with everything fixed. The experience, she says, was “very emotional”.

“I was in so much depression and I feel I have found myself again and hopefully one day I can buy the property again for my son to have a permanent home”.