Mortgage to Rent – A Way of Keeping Distressed Borrowers in their Homes
The Mortgage to Rent scheme can be a valuable solution to what is for some an unsustainable mortgage and could mean that fewer families are made homeless. A brief summary of how the scheme works in practice is set out below:
- The bank or financial institution (“Lender”) assesses the mortgage and, if it is deemed unsustainable, advises the Borrower of the Mortgage to Rent option.
- Once a Borrower engages with the Lender and indicates his wish to apply for the Mortgage to Rent scheme, he will be given the relevant documentation and has two weeks to review and accept the terms. There are a number of eligibility criteria including, for example, the value of the property, the household income and approval for local authority housing supports.
- The Housing and Sustainable Communities Agency must approve the Borrower(s) before accepting them on to the Mortgage to Rent scheme. The Housing Agency will also instruct a valuer to value the property and will apply for Local Authority approval based on the need in the area.
- The property is then offered to Approved Housing Bodies for expressions of interest. Once an Approved Housing Body makes an offer on the property that is acceptable to the Lender, the property will be sold by the Lender to the Approved Housing Body. The Approved Housing Body then enters into a tenancy agreement with the Borrower, who remains in the property.
Some advantages of the Mortgage to Rent scheme are:
- Borrowers who have a personal interest in the property which is their home – as they have after all bought the property, paid stamp duty on it and started paying a mortgage – are allowed remain there and pay rent. The rent is normally below market level but is affordable for the Borrowers.
- Families are thus allowed to stay in their homes and the homeless figures are not increased. This allows, for example, the children of Borrowers to remain at their local schools and keep contact with their local communities, which is important for social cohesion.
- In many cases Borrowers renting under the scheme have an option to purchase their property back from the Approved Housing Body should their circumstances change.
- Lenders are enabled to recover part of their loan thus helping to improve their balance sheets.
- Approved Housing Bodies invest in current housing stock at competitive rates.
While the eligibility criteria are strict and the process can be daunting for those in financial distress, the scheme is a valuable initiative and deserves publicity in the current housing crisis.