The government last week announced a new Scheme, to help low income earners with distressed mortgages, to become renters in their own homes.
The Mortgage to Rent Scheme will allow families to remain in their home but they will have to relinquish ownership. Ownership of the house will be transferred to a Housing Agency which will purchase the home at the market rate (irrespective of what the original house cost).
The transaction is financed by a 70% loan from the original mortgage lender and the balance will come from the State who will take 30% equity in the house.
This project was launched earlier last year and 60 families throughout the State have benefited from it. However, this is not a cure all for distressed borrowers, as the overall budget allocated by the government for this Scheme in 2012 is only €4.5million. It is estimated therefore that only possibly 100 families this year will be the beneficiaries of the Scheme, but it could eventually be geared up for many more next year.
The main points of this Scheme are as follows:
- The maximum value of the property cannot be more than €220,00 in Dublin or €180,000 elsewhere.
- The maximum income earned by the applicant cannot be more than €35,000 per annum.
- Applicants cannot own any other property or have other assets worth more than €20,000.
A difficulty of this Scheme, is the fact that the negative equity sum,(i.e. the difference between the current value and the higher price paid for the property),will not automatically be written off. The borrower will need to engage in a process with their lender on this outstanding sum, but there may also be the possibility that this issue could be addressed under the new Personal Insolvency Legislation which will be introduced later this year.
Whilst this is a welcome development, it is limited in its scope at present. One would be hopeful that the Scheme will be revamped and extended to benefit a far larger number of people in 2013.