Just 26 homeowners in Dublin city transferred to become social housing tenants last year under the government’s scheme to help low-income households struggling with mortgage arrears to stay in their homes.
Nationwide, 432 homeowners became social housing tenants through the mortgage-to-rent scheme, of which 67 were in the wider Dublin region.
At the beginning of last year, Minister for Housing Darragh O’Brien announced changes to the scheme, aimed at accelerating the number of people using it.
“Housing for All commits to strengthening the scheme to ensure that it is helping those that need it, with delivery of an average of 1,000 solutions every year,” said a press release at the time.
The figures for 2022, though, are down on the year earlier, when 678 homeowners across Ireland used the scheme.
Across Ireland, almost 31,000 homeowners have been in mortgage arrears for more than 90 days, show Central Bank figures.
Lenders, whether banks or so-called vulture funds, have issued formal demands for payment from around 6,000 of those, while about 5,800 more are involved in proceedings before the courts.
Susanne Rogers, a research and policy analyst with Social Justice Ireland, says that high house prices in the capital are likely to be a factor in the low uptake of the scheme, which has rules around equity, and house prices are capped.
Another scheme is needed for those who don’t qualify for the mortgage-to-rent scheme, she says.
More people are struggling to pay mortgages at the moment because of increased interest rates, she says. “Not only has your mortgage gone up but the cost of filling your car has gone up and the bills.”
Positive equity can be a burden for people in mortgage arrears, she says. “The bank goes after homes with equity.”
A spokesperson for the Department of Housing says that the terms of the mortgage-to-rent scheme were changed last year. “There are currently no plans to broaden the eligibility criteria for Mortgage to Rent any further.”
Barriers to Entry
Rogers used to work for the Money Advice and Budgeting Service (MABS) and was an approved intermediary for people in debt, she says.
In that role, she helped people in mortgage arrears, including to access insolvency arrangements and the mortgage-to-rent scheme.
There are several barriers to accessing the mortgage-to-rent scheme, she says. Household income must be within the social housing income threshold and the house has to be approximately the right size for the household.
The home must be valued under the price cap for that county and there should be only “marginal equity” in the home – meaning the home cannot be worth a lot more than the mortgage loan owed on it.
A spokesperson for the Department of Housing said that in 2022 the amount of equity allowed increased from €25,000 to €35,000.
The property price cap was pushed up by 14 percent too. It is currently €450,000 for a house in Dublin and €335,000 for an apartment, they said.
“Additionally, the social housing qualification limits were increased across all local authority areas in January 2023, which will allow more borrowers to be within the income threshold to consider Mortgage to Rent as a solution,” he says.
Under the scheme – which is for those entitled to social housing – an approved organisation (often a housing charity) buys the home from the homeowners, who can then stay living there as social tenants.
Since the mortgage-to-rent scheme started, 6,636 homeowners began the process but 3,490 of those deals were not completed, following a withdrawal by either the homeowner or the lender, show department figures.
Rogers says that sometimes the homeowner is eligible at the beginning, but the process takes months and if anything changes – the value of the house increases, say – they are no longer eligible to complete the deal.
The homeowner may also come up with a way to keep ownership of the property, says a spokesperson for the Department of Housing.
Of the 3,490 deals withdrawn, 1,604 applications were withdrawn by the homeowner during the process, he said. “Reflecting the fact that the scheme lends itself to a high withdrawal rate if options other than losing home ownership present to the borrower during the MTR process.”
KBC didn’t respond in time for publication to queries sent Thursday about why more customers in arrears don’t avail of the mortgage-to-rent scheme.
A spokesperson for AIB, EBS and Haven Mortgages didn’t answer the question but said: “AIB is pleased to offer the Mortgage to Rent scheme to eligible customers and has a helpline available.”
A Downside of Positive Equity
In Dublin, at the moment one of the biggest problems is likely to be equity, says Rogers, of Social Justice Ireland.
After the last financial crash, a lot of homes were in negative equity, so if the lender repossessed them at that point it would have lost money, she says.
If a house is in negative equity, the lender is more likely to negotiate, she says. It might allow the homeowner to pay interest only on the mortgage, in the hope that in the future they will start repaying the capital too, says Rogers.
By contrast, when house prices are high and in positive equity, lenders will push for repossession to recoup the full amount they are owed, she says. “On paper, it’s very simple. They can recoup what you owe them.”
If a house is worth €600,000 and the homeowner owes €400,000 on it, but can’t service the loan, that is a no-brainer, she says. “The bank will look to repossess.”
She has seen family homes repossessed on multiple occasions, she says, although the courts do give homeowners every opportunity to come up with a payment plan.
“The registrars are doing their very, very best,” she says. “They are loath to grant an order,” for the repossession of a family home.
However if there is no solution on the horizon and if the bank or fund has all the paperwork in order, the court will eventually have to grant the repossession order, she says. “Inability to pay is not a legal defence.”
People in mortgage arrears are often in dire straights, she says. “I know from my time in MABS what you’ve got are people where something happened to the household,” she says. “There was an illness, there was disability, a loss of job.”
If the bank assesses that the debt is unsustainable, it will write to the homeowner and tell them to consider their options, which are voluntary sale, voluntary surrender or face repossession through the courts.
So, there are many more homes repossessed than those that come to court, she says.
The homeowner can apply for an insolvency arrangement too, says Rogers, but the bank may refuse that deal if there is equity in the home.
The bank won’t accept a big write-down of debt if there is an option of selling the house and recouping the full amount of the loan, she says.
That all means that homeowners in Dublin will struggle to get insolvency arrangements that leave them in the house at the moment, she says. “Dublin would be really, really hard to get because of that mad increase in house prices.”
Another Scheme?
Repossession rates in Ireland remain low in comparison to other countries and given the fairly high level of mortgage arrears, says Sinn Féin TD and housing spokesperson Eoin Ó Broin.
“The really surprising thing is that mortgage-to-rent has been so unsuccessful,” he says.
The idea is good, but despite several tweaks to it, uptake remains low, he says.
It could be an issue of concern that the mainstream banks are no longer in possession of the majority of distressed mortgages, which have been sold to funds, says Ó Broin. “They are potentially sitting on the asset waiting for the property price to be higher than the mortgage.”
Seventy-four percent of mortgages in arrears more than a year are now held by non-banks, according to data from the Central Bank.
Social Justice Ireland proposes an equity scheme be set up, to help those who have equity in their homes, as well as people who are over the social housing income threshold.
The state could then recoup that money when the property is sold, she says. This would be especially useful for older people who are unlikely to get back on track with their mortgage, she says.
“Rather than putting these people out on the street, why doesn’t the government establish a fund to buy out the equity?” she says.
[CORRECTION: This article was updated at 7.32pm on 22 February 2023. The Department of Housing has said it gave the wrong figure as to the number of homeowners in Dublin city who stayed in their homes through the scheme last year.]
This article was produced as part of the European Cities Investigative Journalism Accelerator. It is a network of European media dedicated to researching common challenges faced by major European cities and countries. The project is a continuation of the European research Cities for Rent and is funded by the Stars4Media program.