How Mortgage to Rent Works

Brendan Burgess

Brendan Burgess

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Hi Delboy

This is how a Mortgage to Rent works
1) iCare buys the house from the owner
2) the proceeds are paid to the lender who writes off the shortfall
3) iCare rents the house to the Local Authority at market rent - probably about 10% of the property value
4) The local authority rents the house to her on a differential rent - an average of €50 a week.



Her kids will probably buy the house at 60% of the market value.

Brendan
 
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Brendan Burgess said:
Hi Delboy

This is how a Mortgage to Rent works
1) iCare buys the house from the owner
2) the proceeds are paid to the lender who writes off the shortfall
3) iCare rents the house to the Local Authority at market rent - probably about 10% of the property value
4) The local authority rents the house to her on a differential rent - an average of €50 a week.

iCare is not allowed by the rules to sell the house back to her. However, you can be sure that in time, political pressure will result in a change to these rules.

Her kids will probably buy the house at 60% of the market value.

Brendan
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Is this correct.

1. The LA pays iCare 30k rent 10% of 300k)
2. The tenant pays the LA €2600 a year. Where does she get this money if she’s not working?
3. The landlord then is the LA.

Would it be cheaper for the LA to pay her rent on a different property.
 
Brendan Burgess said:
Hi Delboy

This is how a Mortgage to Rent works
1) iCare buys the house from the owner
2) the proceeds are paid to the lender who writes off the shortfall
3) iCare rents the house to the Local Authority at market rent - probably about 10% of the property value
4) The local authority rents the house to her on a differential rent - an average of €50 a week.

iCare is not allowed by the rules to sell the house back to her. However, you can be sure that in time, political pressure will result in a change to these rules.

Her kids will probably buy the house at 60% of the market value.

Brendan
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I understand that Brendan. My point was that the kids buy it from iCare at that 60% reduce price say in 20 years time. 2 years later they sell it at market value.
How can that be stopped...I don't see how.
 
I agree that no home should be repossessed if it could go under the mortgage to rent scheme but I also feel there is not enough repossessions where people are making no effort to engage. People who are paying their mortgages are taking the hit and paying above what the interest rate should be. I also think there are too many Charities involved in the housing crisis .
 
I was wondering how iCare is funded. Hall got 15 million from AIB. But they also get state funding.

https://www.irishtimes.com/business...p-icare-eye-target-of-1-000-tenants-1.3576329

So the state provides subordinated debt to iCare. ICare gets to own the properties. And then the state pays again. Paying iCare rent for the properties.

AIB gets rid of their most problematic properties, family homes with non payers. Presumably carefully picked homes too.

Anyone care to explain what state subordinated debt means in this context?

I'd love to know the figures on one of these transactions. And whether it is costing the state more than them just paying the mortgage directly.
 
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Bronte said:
And whether it is costing the state more than them just paying the mortgage directly.
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The MTR scheme is a fancy form of "off balance sheet" financing, which will cost the tax payer a fortune in the long run.

The tax payer is providing a state guarantee to the investors that they will:

  • Pay the market value of the rent to the investor for, say, 20 years.
  • Agree to keep the property in a good state of repair.
  • When the tenant vacates, the tax payer (via the Local Authority) will be responsible for any further repairs.
  • The Local Authority will only receive a low rent in return.
When the investor sell the property in, say, 20 years time, it will be the sole beneficiary of any capital gain.

I 100% agree that a MTR scheme should be put in place, but the scheme should be one where the tax payer buys the property directly, and avoid the expensive "middle men". Given that the Government recently raised some €4 billion of 10 year money on the international bonds market at a cost of just 1%, such an option would be much better value for the tax payer. Instead of the tax payer paying just 1% finance costs, it will end up paying in the order of 8%, and will lose out on the future capital gain.

Jim Stafford
 
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Thanks Jim for that analysis. If we're still around in 20 years we'll have a thread on what a waste of money this was. The i-Care charity are the big winners here. Anybody on their board will be also in employment for years to come. Because as I said upthread, they're going to be the second biggest landlords in the country after the state. With zero landlord obligations or costs.

Did nobody in the Dept of Finance sit down and work out how costly this is. This being the most shocking:

Instead of the tax payer paying just 1% finance costs, it will end up paying in the order of 8%, and will lose out on the future capital gain.

Surely the state could have protected itself better. David Hall must be laughing.
 
Does icare not get funding from the Housing Finance Agency to make the purchase?

This is how other AHBs get their funding.

HFA funding is basically at whatever the NTMA can borrow at.


I have mixed views on the whole AHB model. There are good public finance reasons for a steady flow of public spending rather than 'lumpy' capital spending with big debt redemptions down the road.

AHBs may be better at managing the asset and reducing voids. Some local authorities have been poor at this in the past.

I have never come across good evidence either way on this.
 
What are the staff costs in iCare? Are there any publicly available figures? Is it also not a little dodgy seeming that Mr Hall posts on social media the threat of a protest outside the house and then his company/charity buys the property?
 
dereko1969 said:
What are the staff costs in iCare? Are there any publicly available figures? Is it also not a little dodgy seeming that Mr Hall posts on social media the threat of a protest outside the house and then his company/charity buys the property?
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Actually there is a brilliant website called Benefacts which pulls together information on non-profits.

As of December 2017, there was very little information available on [broken link removed]care. Take a [broken link removed].

Apparently it had no employees, and it abridged its financial statements, claiming it can do so under the Companies Acts.

I guess as its balance sheet grows more should emerge into the public domain.
 
elcato said:
Alarm bells
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I don't understand how there are no employees. Surely someone has to be managing all the paperwork, doing the negotiating etc. And that takes actual people. And they have to be paid.

I suppose the directors and trustees get paid. Would that be much does anyone know. Presumably that pay comes out of the profits the charity is making.
 
@Bronte

That was the situation at end-2017. Have a look yourself.

I would suspect they have employees at this point. Their website indicates a business address and phone number.
 
@RedOnion

So a body with no employees already has €100m in fundingo_O

The 'government' bit would presumably by the HFA, but according to their website the HFA's own criteria for lending to AHBs is:

  • Evidence of at least three years' operation of projects under the Capital Loan & Subsidy Scheme
  • Acceptable legal form (company, co-operative, society)
  • Three years' audited financial statements
  • Current Tax Clearance Certificate
It would appear that icare cannot meet the criteria of three years' operations and financial statements.

So where David Hall getting the 'government' funding if not the HFA?
 
The Journal has run a story on this also

https://www.thejournal.ie/icare-mortgage-to-rent-4445156-Jan2019/[/quote]
The housing body secured funding from AIB under normal commercial terms and borrowed to purchase the houses. The State funded 30% of the purchase price via a long-term low interest loan. Hall said most of the banks and one of the vulture funds have agreed to discounts on a case by case basis.

Though he said he was “not the biggest fan” of the banks, he said he had to give them credit today. Some 150 of these deals were made with AIB, but he said all of the main banks – and two funds – are engaging.
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