A major expansion of the often criticised mortgage-to-rent (MTR) scheme is on the way as Minister for Housing Eoghan Murphy seeks to dramatically increase the number of homes in the scheme.

Private investors will be invited to buy blocks of distressed mortgages and let the homes back to the householders as social housing tenants, while eligibility criteria look set to be relaxed to allow distressed borrowers who don’t qualify for social housing, to apply for MTR.

When MTR was introduced in 2012 it was hoped about 250 homes a year would come into it. By the end of March however just 240 homes had gone through the scheme, of 3,672 submitted.

The scheme has been criticised as too cumbersome and too long (turnaround times have taken up to 18 months), and most lenders have been unenthusiastic.

Currently, to avail of MTR a distressed homeowner, with the agreement of their lender, surrenders the home to the bank which in turn puts it forward to the Housing Agency. If the borrower is deemed eligible for social housing by their local authority and the home meets set criteria – in value, location and condition – the agency offers it to approved housing bodies (AHBs).

If an AHB is interested it buys the home from the bank and lets it to the borrower as a social housing tenant.

‘Buy-in’ from banks

Claire Feeney, the Housing Agency’s senior officer responsible for MTR, said recent reforms – increased valuation thresholds, flexibility on some criteria and much faster application processing – had yielded “buy-in” from all banks.

“I have found a total shift in the banks’ attitude. AIB has come on board hugely. They have 95 homes now with solicitors, close to closing. Bank of Ireland has big numbers going through.”

The agency is awaiting approval from Eurostat, to ensure the scheme fulfils certain conditions before seeking expressions of interest from equity investors to get involved. Their involvement, in a pilot model initially, will be in addition to the current model involving approved housing bodies.

Ms Feeney envisages about five firms being selected to purchase up to 200 distressed loans in the pilot.

If a borrower and their home are eligible, the investor will buy the distressed loan at face value. The householder will be guaranteed a tenancy of 20-30 years, paying a differential rent (typically 15 per cent of net income) to their local authority, which will in turn pay an agreed market rent to the investor. The investor will do all repairs and upkeep.

“There is yield in this,” said Ms Feeney. “We have talked to firms who are really enthusiastic, who are planning on doing thousands of these. The banks are up for this. The State will do this. Really now it’s down to the home-owners and how enthusiastic they will be.”

In addition, Mr Murphy plans to enable distressed borrowers whose income disqualifies them for social housing, to apply.

“The current mortgage-to-rent scheme concerns people who are eligible for social housing. We need to find schemes if we can that would also work for people who are not eligible,” he said. “That is something that we are also going to look at.”