Dáil Éireann Debate, Thursday - 23 February 2017
2. Deputy Eoin Ó Broin asked the Minister for Housing, Planning, Community and Local Government if he will provide greater detail on proposals to involve private equity firms in the revised mortgage-to-rent scheme, including information on the financing of private equity lease arrangements, security of tenure for homeowners and tenants and the involvement or otherwise of distressed mortgage holders who do not qualify for social housing. [9093/17]
View answerI want to ask questions about the mortgage-to-rent review that was published last week. We all know the scheme has not been a success. There have only been 217 mortgage-to-rent cases completed over six years. I welcome a number of the proposals relating to the scheme. These should assist in some respects. My question relates to the potential involvement of equity funds in buying up tranches of mortgages. Will the Minister give us more information on how he sees the pilot schemes running between now and October on three issues in particular? How will security of tenure for the tenant be secured as it is in the context of mortgage-to-rent arrangements with approved housing bodies?
How will the financing be done, both in terms of the percentage of market rent and any other financial supports that currently apply to approved housing bodies, and will they also be applied to vulture funds?
I and my Government colleagues are acutely aware of the challenges faced by households in mortgage arrears and who potentially are at risk of losing their homes. Rebuilding Ireland includes a range of actions that are targeted at assisting borrowers and ensuring that a range of suitable restructuring options is available that ultimately seeks to support borrowers to remain in their homes. As part of those actions I have sought, through the review of the mortgage-to-rent scheme, to ensure that those households who have no realistic prospect of returning to solvency can be supported to remain in their homes in a secure social housing tenancy arrangement thereby avoiding additional pressures on the rental and social housing sectors.
The review acknowledged that the current operating model, which relies on approved housing bodies to purchase individual properties, may not have the capacity to meet the needs of all borrowers who may be eligible for the scheme. In order to test the operability of alternative funding models for the scheme, the Housing Agency will work with a number of financial entities that have come forward with an interest in working with the mortgage-to-rent scheme to progress a number of pilot alternative lease arrangements. The contractual and lease arrangements that are required to secure these units from a local authority perspective require detailed consideration and the questions the Deputy has asked need answers. Overall, these pilot projects are in a developmental stage and my Department is working with the Housing Agency in this regard. I will be in a better position to set out in more detail how the pilot projects will operate and how the private investors will be selected when this development work is complete.
I have met a number of these organisations and most of them are not motivated by profit but they need a certain minimum rate of return to get funding and backing. Essentially, instead of banks having to deal with individual properties and individual approved housing bodies and selling the properties one by one, the banks would cluster groups of properties that would qualify for the mortgage-to-rent scheme, the owners would also qualify under the new more flexible criteria and we would put together a financial package, which would mean that we could deal with 20, 30 or 50 cases at a time, which would be in the interests of the borrowers and the banks concerned. The opportunity to deal with significant increased numbers will flow from that.
I thank the Minister for his reply. Any of us who is keen to see greater solutions for those in mortgage distress will keep an open mind on this. The first key issue is security of tenure. As the Minister knows, under the current rules, if somebody mortgages to rent with an approved housing body, they effectively have a lifetime tenancy. Will the same type of principle apply in these cases? If we consider, say, a 20-year lease with a fund, even a long-term reputable investment fund, the difficulty is about what will happen at the end of the 20-year period. There is also the issue of the financing because there is considerable financial support for the approved housing bodies, albeit not as much as they would like, both in terms of the 40% figure, essentially a grant deposit, as well as the €15,000 grant for refurbishment. If the involvement of funds involves an approved housing body and a fund, as one model is proposing, that has implications, but if it just a fund that is going to purchase large volumes of distressed mortgages, does the Minister envisage those involved having the same access for the €15,000 grant for repairs or, for example, something similar to the capital loan and subsidy scheme, CLSS, payment to assist them with a deposit? What is the current thinking on those issues?
I have met a number of the organisations behind the funds to explore how this might work. At least one of them is now an approved housing body as well. The one in which David Hall is involved, for example, applied to become an approved housing body and it believes it can raise sufficient capital with very modest rates of returns. The business model will be something along the lines that a local authority will agree to effectively lease a property under a normal leasing arrangement for 20 years with an option to renew after 20 years. The security of tenure for people in these properties should be more or less the same as a normal social housing tenant in a long-term tenancy arrangement. In the case of approved housing bodies that look to State to partially fund acquisitions, that is a slightly different model. There is a third model whereby funds seek to invest in social housing, knowing that the State will give a guaranteed rent for a long time. They will be looking for low levels of returns with very high security, which is a classic pension fund-type model. We have asked the Housing Agency to work through these models with the different people and organisations concerned and then we will choose the ones we will deal with. From my experience of the organisations we have met, they all have pretty altruistic motives in this respect. This is not a vulture fund-type set-up; they are organisations that have been set up to try to improve and provide more social housing and to put in place a long-term funding arrangement to facilitate that.
Certainly that is the case in respect of the business model David Hall and his associates have put in place. However, whether that is the case for the likes of Arizun or Merrion Capital, for example, we are not yet sure and that is because we do not know the detail. As soon as some of that detail is available, the housing committee might be a good place to tease that out. Many of us would like to support a good initiative that allows people to remain in their homes.
There are two other questions in this respect. The first relates to those people in mortgage distress who do not qualify for social housing support under the current legislation and whether the funds may provide an avenue for addressing their long-term housing needs. In addition, the approximately 20,000 buy-to-let properties that are more than 90 days in arrears and which have tenants in them clearly will not benefit from this scheme. Equally, however, if those tenants are in receipt of rent supplement, the local authorities cannot purchase those houses. What is the Government's thinking in terms of how to deal with those two sections of the distressed mortgage market?
My Department can only take decisions and responsibility directly for those who qualify for social housing. There are broader considerations potentially within Government and the Department of Finance on whether we extend those criteria. There is an ongoing discussion as to whether, for example, we extend income thresholds around social housing eligibility and there are arguments for and against that. What we have done, which is quite a significant change, is we have launched the Abhaile programme whereby homeowners and borrowers can now access, if they are in real difficulty, free legal assistance and free financial advice and assistance. On top of that, for people who have no hope of being able to repay unsustainable loans, there is an obligation on banks to give a very good reason as to why they would not work with a mortgage-to-rent type system. We have widened the eligibility criteria for that in terms of qualification of a property, in that a property with two spare bedrooms can qualify and the value of the property can also be higher but the eligibility criterion for the applicants must be that they qualify for social housing. Otherwise, we get would get into the territory of moral hazard. If we do not have some income limit, we will have people seeking to potentially stay in households when they may have unsustainable debt but also have an income level that could allow them to provide themselves with alterative accommodation without too much difficulty. There are various issues to consider. We have spoken to the Department of Finance about that but the core point is we are significantly expanding the mortgage-to-rent scheme and I hope it will result in a significant increase in numbers.
