New Mortgage to Rent Scheme Announced by Government

The long-awaited announcement of the new mortgage-to-rent scheme has been made by Damien English T.D., the Minister of State with Special Responsibility for Housing and Urban Development. This follows an intensive consultation process involving the Housing Agency, local authorities and other stakeholders including Home For Life (the only non-publicly funded participant in the new scheme). This is a significant development for households in long-term and unsustainable mortgage arrears. It is expected that the new scheme will keep thousands of families (currently at risk of eviction) in their homes.

Home for Life

Home for Life is the only participant authorised by the Department of Housing, Planning and Local Government to operate the new mortgage to rent scheme. The authorisation of Home For Life followed a public process, led by the Housing Agency, seeking suitably qualified parties interested in entering into long-term lease arrangements with local authorities for the provision of accommodation to eligible households.

Home For Life is initially targeting 500 households for the new scheme with capacity to deliver considerably more. Home for Life has agreed terms with Permanent tsb plc for the new scheme and is in active discussions with other financial institutions.

OSM Partners have advised Home for Life on the structuring of the new scheme to ensure flexibility and operational efficiency. OSM Partners will continue to act for Home For Life in the acquisition and leasing of the subject properties which is central to the delivery of the scheme. 

Rebuilding Ireland and the Mortgage to Rent Review

The Government’s action plan for tackling the housing crisis, Rebuilding Ireland, was published in July 2016. The plan identified the requirement for the Department of Housing, Planning and Local Government to improve the existing mortgage to rent scheme (which was introduced in 2012). 

The rationale for mortgage to rent has always been sound - it allows households in unsustainable mortgage situations to get certainty around their long-term housing. However, the rate of uptake was always disappointingly low due in large part to the multitude of stakeholders and the excessive bureaucracy involved. In the years from 2013–2016, only 217 mortgage to rent arrangements completed. In the same period there were a total of 2,723 unsuccessful applications. These figures illustrate the low conversion rate as well as the general appetite for the scheme. It was accepted in Rebuilding Ireland that mortgage to rent should be a solution for a greater number of households.

Part of the exercise mandated by Rebuilding Ireland for improving the scheme involved the examination by the Department of Housing, Planning and Local Government of alternative financing arrangements and purchasing models (involving long-term lease arrangements between local authorities and financial institutions). To date, funding for the scheme was mainly provided by way of low interest borrowings made available to Approved Housing Bodies (AHBs) through the Capital Advance Leasing Facility and an availability agreement executed between the AHBs and local authorities.

A review of the scheme was published in February 2017. The review set out a series of actions and amendments that aimed to make the scheme quicker, more transparent and easier to navigate and access. The actions identified in the review included the expansion of the eligibility criteria as well as improvements to the processing and administration of the scheme. 

In respect of the mandate to examine alternative financing arrangements and purchasing models, the review found that the previous financial model of the scheme may not be capable of delivering the scale of successful cases that could benefit from the scheme over time. The review noted that alternative funding options were available (including the off-balance sheet potential of non-publicly funded entities).

Home For Life proposed an alternative arrangement that would see the mortgaged property transferring to Home For Life’s ownership (as opposed to an AHB) and the property would be leased to the local authority who grants the former property owner a tenancy to remain in the property. The main advantage of this model is that a greater number of households could potentially be assisted in a shorter timeframe. From the Government’s perspective, the funding arrangements would be off-balance sheet and would free up capital resources for other social housing purposes.

Significance of Government Announcement

The announcement by Minister Damien English T.D. signals the next step on delivering mortgage to rent at the scale needed to meet the needs of more households in long-term and unsustainable mortgage arrears. The new scheme will allow a significant number of households to make a fresh, mortgage-free start in their existing home. The solution offered greatly reduces the cost, stress and risk of homelessness and it is certain to be of interest to thousands of eligible households.

Overview of the New Scheme

  • Eligible borrowers engage with their lender and volunteer to be part of the new scheme;
  • Home for Life provide funding for independent legal and financial advice;Borrowers voluntarily surrender their property to their lender;
  • Their lender sells the property to Home for Life and the price paid is offset against mortgage debt;
  • Subject to prior agreement with the lender, residual mortgage debt and arrears are written off;
  • Home for Life leases property to the relevant local authority on a long-term basis thus enabling the borrowers to remain in the property as a social housing tenant(s) paying an agreed rent;
  • The local authority becomes the landlord to the tenant(s);Home for Life provides ancillary management and maintenance services for the property; and
  • After five years tenant(s) have the right to buy back the property at the price paid by Home for Life (inclusive of certain predefined costs). 

For further information on the Mortgage to Rent scheme, please contact Raymond Lambe, or your usual contact in OSM Partners.