YESTERDAY THE GOVERNMENT announced a new entity that had been set up to buy the homes of distressed property owners in arrears.
The company – Home For Life – would then long-term lease the home back to a local council and the people who live in the house would become social housing tenants.
This would be done under the government’s mortgage-to-rent scheme.
Home For Life will be the first privately owned commercial company to offer the service. Before this, housing charities – known as Approved Housing Bodies (AHBs) – were the only ones offering the service.
Homes For Life launched its service yesterday, and the government took the opportunity to launch its new Mortgage to Rent information website.
The company currently has an agreement with PTSB in which eligible mortgage holders can apply to it, and said it is also in discussion with other financial entities.
It has a fund of €100 million to provide 500 “solutions” for mortgage holders in arrears, and scope to invest more.
The entry to the market of private companies has sparked concerns around profit-making entities moving into an area previously occupied by not-for-profits, while others have welcomed increased movement and investment for the scheme.
Mortgage to Rent Scheme
Latest Central Bank figures for the first three months of this year show that there are 29,818 residential mortgage arrears cases where the mortgage holder is in arrears over 720 days.
People in mortgage debt have been described as “one of the biggest threats to housing in this country”, with commentators warning of a wave of repossessions coming down the line.
The mortgage-to-rent scheme was first set up in 2012 to help homeowners in long-term arrears settle their debt with the bank while also staying in their homes.
However, between 2012 and 2017 the scheme was largely unsuccessful, with just 282 successful cases completed (and 2,909 deemed not eligible).
In early 2017, then-Housing Minister Simon Coveney published a review of the scheme and announced a number of changes.
Among them was allowing private financial companies to act as the buyer of the distressed property, as well as measures to make the scheme more flexible for distressed mortgage holders.
There are still a number of strict criteria that homeowners must meet under the MTR guidelines. They are as follows:
The process
The MTR scheme can be a lengthy process to complete, with a number of different stakeholders involved.
Essentially, the homeowner in arrears has to relinquish all right to the home. The bank then sells the home to either the Approved Housing Body or the private entity.
If it’s an AHB, the former homeowner than becomes a social housing tenant, with the housing charity acting as their landlord.
If it’s a private company (as with Homes For Life), the company will long-term lease the property to a local council for a period of 25 years. The former homeowner would then become a social housing tenant of the council, with the private company maintaining the property.
In this time, the home can be sold to other investors, but this would not affect the terms of the 25 year lease. After the 25 years are finished, it is expected that a new leasing arrangement would be arranged, however there is no legal guarantee of this.
Under the scheme, the new tenant after five years has an option of buying back their home. However, in practice experts believe that this would be unlikely to happen in many cases.
“They’ve completely misjudged this”
The entry into the MTR scheme of private companies has led to strong criticism of the government from some commentators.
David Hall – CEO of the Irish Mortgage Holders Association (IMHO) and iCare Housing (an Approved Housing Body) – said that allowing private companies to enter to space showed a lack of understanding from government.
“There’s a big difference between the two,” Hall told TheJouranl.ie.
It’s a consistent flaw of the entire MTR scheme of not understanding those people who are in arrears and debt.
Hall launched iCare last year as an Approved Housing Body and MTR provider. iCare is a housing charity dedicated to assisting those in long-term mortgage arrears stay in their homes.
He said that since its launch, 26 homeowners have signed contracts to stay in their homes, while hundreds more are in the process of doing so.
He took issue with the fact that his charity and private investment company Homes For Life are being presented as performing the same service.
“What I object to is saying there’s no difference between the two… Basically trying to infer that everything is the same – when it’s not the same,” he said.
He said the difference was that one entity was a regulated charity, operating under strict conditions, while the other was an investment fund with no statutory requirements once the terms of the scheme are finished.
“This proves the fundamental disconnect between the department and those in mortgage arrears,” he said.
They just don’t understand… If a customer is too afraid and anxious to engage with a bank – why would they engage with a fund?
The government is at pains to emphasise the similarities between the scheme being run by a private company or a charity – a chart on the main page of its new website tries to highlight this:
a section of the chart.Source: http://mortgagetorent.ie/
A good option
Paul Joyce - senior policy analyst with Flac (Free Legal Advice Centre) - said the scheme itself was good for families if they were able to avail of it.
He said that firm questions needed to be answered over what will happen with the leases after the 25 year period was up, but that the fact that the local council would provide security for distressed mortgage holders.
"I suppose the key thing for me from what I can see is the properties will be rented to local authorities who will rent them out," he said.
This should carry a right to security of tenure.
Joyce said it would be important to see how the scheme was run, to determine if it was a success.
Need for finance
Responding to a Parliamentary Question in the Dáil late last year, Eoghan Murphy stated that the way in which the MTR scheme had been funded in the past may not have been capable of delivering the "scale of successful cases that could benefit from the scheme over time”.
He said that for this reason “alternative funding models” were being examined which included working with a number of “financial entities who have expressed an interest”.
These are entities like Home For Life, which sees an opportunity in the MTR model.
The Irish company is run by experienced property investors Charles O’Reilly Hyland and Max O’Reilly Hyland.
With its access to capital and investment, the government is hoping to further encourage more homeowners to avail of the scheme.
"This new approach to mortgage-to-rent is a significant step towards enabling the scheme to operate at scale to meet the needs of more borrowers in mortgage distress," junior minister Damien English said yesterday.
Paul Joyce said it will be important to wait to see how the plans progress before determining their success.
"I suppose that depends on how the scheme is actually run," he said.
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