Mortgage-to-rent and why it needs to work
Much maligned and many false starts, the revamped mortgage-to-rent scheme is here to stay and is a critical part in resolving long-term mortgage arrears in Ireland. The system will benefit the State, investors and the banks, but above all will provide those in long-term arrears with a workable way through the predicament in which they find themselves.
2011 Ireland saw over 150,000 family home loans in mortgage arrears without any real structure to deal with the problem. While the simpler of these arrears were dealt with relatively swiftly by the banks, it was very clear at that time that the State and the banks needed to tackle the sheer scale of mortgage arrears. From that came the Inter-Departmental Group on (residential) Mortgage Arrears, authored by KPMG executive Declan Keane, which produced a series of recommendations in October 2011, among which “mortgage-to-rent”. The recommendation was welcomed, not least because mortgage-to-rent is cheaper and more sustainable than emergency accommodation or the Housing Assistance Payment but also (and above all) provides dignity and security to those in arrears.
The mortgage-to-rent concept was a relatively straightforward one – a struggling homeowner who was unable to restructure their mortgage could, under certain conditions, remain in their home as a social housing tenant. It required applicants to qualify for social housing support, have a property valued below certain thresholds and for the property to be of an appropriate size for that borrower. And it was this set of conditions that ultimately made the original scheme unworkable (of the c4000 people who applied to the scheme between 2012 and 2017, 300 actually qualified). In essence, the property thresholds were too low, the Approved Housing Bodies tasked with delivering the scheme were unenthusiastic at best, the funding was complicated and the rules around eligibility were more complex than they needed to be.
Fast forward to 2017 and the mortgage arrears crisis had abated somewhat with overall arrears figures steadily reducing and over 120,000 solutions implemented by all lenders. Notwithstanding this progress, thousands of cases remained unresolved, 6 years after the initial crisis. The societal impact of which has not to date been measured. There are a few obvious reasons for this lack of progress for some families across the country, not least the reluctance of the Courts to grant repossession orders, but also the ever-changing legislative and regulatory environment and indeed the unwillingness of the banks to recognise intractable cases. The bottom line for these families however was they simply did not have the financial means to restructure their loan and had no prospect of getting their loan back on track.
And this is where the necessity of the mortgage-to-rent scheme comes into play. Revamped in February 2017 as part of Rebuilding Ireland, the scheme now has new valuation rules and more flexibility around eligible house size. These changes, coupled with the advent of focused approved housing bodies like iCare Housing, will provide the only solution left for those in most difficulty and could provide a way out for up to 10,000 home owners.