New Rent to Buy Scheme between IMHO and AIB

[Sarenco]

The tenant will have an option to buy back at this price at any time in the future.

So the mortgage debt is written off in full and the tenant is given an open-ended option to repurchase the property at what may well be a fraction of the market value of the property.

Presumably in the interim the rent will be well below market.

That's some deal alright.

 

[The Horseman]

To say this is crazy is an understatement. Suffice to say the banks have decided it is not economically viable or possible to repossess these properties to realize the outstanding balance. Yet on the flip side people complain about no competition in the banking sector and high mortgage rates.

We will be asking the same questions in about 10 yrs time and no doubt going through the same circumstances. Why aren't we willing to take the hit (painful as it may be) now and move on rather than putting a plaster on the cut knowing it will not heal.

 

[Firefly]

Mark my words , I've said it hear before ... next up is the responsible people who have provided adequately for their retirement ... as the government struggles to deal with the pension issue they will turn their attention to higher taxes on pensions possible means test away the state pension from people who also paid into a contributory pension also.

Without taking this off-topic I agree. Private pensions will become mandatory and the OAP will be the OAP minus the amount from somone's private pension. Those who never work will get the full OAP.

 

[Brendan Burgess]

I will be discussing the scheme with David Hall on Matt Cooper on Today FM at 16.30 and with Minister of State for Housing John Paul Phelan on TV3 just after 11 pm tonight.

Brendan

 

[Delboy]

Ivan Yates spoke a bit about it there at 4pm.
He congratulated David Hall for all his fine work in this area and for putting together this scheme. He said AIB would have exhausted all options with the people who will come under this and that this is the best for all concerned.
He then went into pure fantasy land by saying the 500-2,000 people who'll come under this would have been evicted otherwise and their homes repossessed. That they'll forfeit the equity in their homes by signing up and have to take out mortgages in future if they wish to buy the houses (no mention of the large discounts they'll achieve).

 

[Brendan Burgess]

Got a bit more information on the scheme from David Hall on the Today with Matt Cooper

The renters will be getting a 28 year lease
The option price on the house will be in the lease - they can buy it back at any stage.
The price set today will be agreed with AIB - it will be a discount on today's market price, but the level of the discount is "commercially sensitive" - I suspect it's 10%.

One bit I didn't understand is that the taxpayer will be paying 40% of the cost of the house through a 30 year loan at 2% simple interest.

Something like the following:

The taxpayer will pay 92% of the market rent for the property and the tenant will pay the Social Housing rent.

It will be for about 600 AIB customers initially, but eventually could be 7,500.

Brendan

 

[PGF2016]

I will be discussing the scheme with David Hall on Matt Cooper on Today FM at 16.30 and with Minister of State for Housing John Paul Phelan on TV3 just after 11 pm tonight.

Brendan

This is something that should go before a referendum long before lowering the voting age to 16. Let the public know how tax payers money is being used and see if they agree with it.

 

[Sarenco]

The option price on the house will be in the lease - they can buy it back at any stage.
The price set today will be agreed with AIB - it will be a discount on today's market price, but the level of the discount is "commercially sensitive" - I suspect it's 10%.

This is one element of this deal that I just can't get my head around.

Why is the tenant/defaulting mortgagor being given an option to repurchase the property at any time at an option price that is calculated at a discount to today's market value?

That repurchase option will be valuable to the tenant/defaulting mortgagor from the outset but in time it could become incredibly valuable. Who knows what the market value of the property will be in 10 or 20 years' time?

It seems so excessively generous that I pulled up the Department of Housing Review of the Mortgage to Rent (MTR) scheme that was published in February to see if it shed any light on this –
http://rebuildingireland.ie/install...the-Mortgage-to-Rent-Scheme-February-2017.pdf

Here's what it says about the repurchase option under the MTR scheme:-
"Households can buy out the property at open market value after a period of 5 years".

Well, that's not what this deal provides for – there could be a world of difference between the option price and the open market value of the property whenever the option is exercised.

Will the tenant forfeit this valuable repurchase option if they fall into arrears on their rent payments to Mr Hall's "charity"?

Also, what happens at the end of the 28-year lease period?

 

[lukas888]

Sarenco,I suspect you very well know the likely outcome after the 28 year lease period.The original sitting tenants or their children/ grand children will continue to reside and woe betide any one who calls foul.

 

[Bronte]

Got a bit more information on the scheme from David Hall on the Today with Matt Cooper

The renters will be getting a 28 year lease
The option price on the house will be in the lease - they can buy it back at any stage.
The price set today will be agreed with AIB - it will be a discount on today's market price, but the level of the discount is "commercially sensitive" - I suspect it's 10%.

One bit I didn't understand is that the taxpayer will be paying 40% of the cost of the house through a 30 year loan at 2% simple interest.

Something like the following:

View attachment 2220

The taxpayer will pay 92% of the market rent for the property and the tenant will pay the Social Housing rent.

It will be for about 600 AIB customers initially, but eventually could be 7,500.

Brendan

We will need a worked example to see exactly how this works. To see who is paying what. Presumably you've figures ready for later. To confirm. Hall is really good at sounding very nice. I've no problem with people in trouble being hepled out, as long as they are can not pay versus won't pay.

 

[Delboy]

BB on TV3 now. Up against the host Ivan Yates who's certainly not hiding his colours in the debate

 

[gahfan]

I think the principles of keeping people in their homes is a good one.

 

[Sarenco]

We will need a worked example to see exactly how this works. To see who is paying what.

Strongly agree.

The funding of this scheme is completely opaque and this is not acceptable where taxpayer money is involved.

 

[The Horseman]

Strongly agree.

The funding of this scheme is completely opaque and this is not acceptable where taxpayer money is involved.

I don't have a problem with keeping people in their homes I do however have an issue with the idea that (a) the householder can repurchase the property at a point in the future equal to the purchase price of Icare, (b) the interest rate is 2% simple interest and (c) the differential rate of rent.

Why not say the property is purchased from the bank and the balance is written off, the householder can purchase the property at any point in the future at the current market value when they are purchasing it. Any "profit" ie the price Icare have paid v the sale price is returned to the State.

On the face of the existing proposal as I understand it, the householder can repurchase the property at any point in the future at today's discounted price while at the same time availing of a small differential rent. The householder just needs to save a bit every week and hey presto they can purchase the property.

 

[Delboy]

Yes, an example of this scheme in practice, from start to finish is needed.
And the costs of maintenance need to be worked into the example. Because I'm certain the 'tenant', as is the case with LA housing, will not have to fork out for maintenance and upgrades over the years. This adds up.

When Hall was on The Last Word with BB yesterday, he was practically gloating. Kept telling BB to 'wait for what I'm about to say, you'll definitely combust then'. He was in effect gloating I thought.
But did I understand him properly when he discussed the eventual discounted purchase price that the house would be available at to the 'tenant'...that the price would be agreed now (at a large discount) and inserted into the contract. And 28 years later the house would be available to buy at that same price, not allowing for time value of money/housing inflation since then?
Thats what it sounded like to me and if thats true it's scandalous. Why would any contract be set up in such a way.

 

[Brendan Burgess]

Kept telling BB to 'wait for what I'm about to say, you'll definitely combust then'. He was in effect gloating I thought.

I thought that was very odd indeed. He said "You will need to be sitting down when you hear this one..."

And it's very clear that the tenant is getting an option to buy a house at any time over the next 28 years at today's price.

The weird thing is that I have heard commentators saying that people are "losing ownership of their homes"

You can buy my home from me today, write off my mortgage and give me an option to buy it back at a discount on today's price.

The guys who designed this, just don't understand finance.

Brendan

 

[Firefly]

Do we have any idea what the rent will be for the houses? Is it based on the value of the home or prevailing market rents?

What will happen if rents are not paid?

Re: being able to buy back the home at any time, once the rent is adequate and is paid, I wouldn't necessarily have a problem with this as it's just like an interest only mortgage (again, once the rent would cover the interest and it is actually paid).

 

[Delboy]

So you bought a 400k house in the boom thats now worth 300k and has mortgage arrears of 80k after not paying anything for the past 6 years of accomm free living.

The arrears are written off.
The house is discounted to 200k for no real reason except it makes it cheaper for iCare and the LA to finance the purchase now.
The 'tenant' gets a heavily discounted rent v's market rates.
The contract allows for a 28 year lease with a written in stone purchase price of 200k which is not impacted by inflation/house price movements.
The LA covers the maintenance fees

It's an absolutely mind blowing deal. And yes, whoever in Govt agreed to it doesn't understand finance.

Even if money was tight in 28 years time and say you couldn't get a mortgage, you'd be mad not to go to the local loan shark for 200k. Buy the gaff and flog it soon after because it'll probably be worth at least several multiples of today's discount value.

 

[Delboy]

Do we have any idea what the rent will be for the houses? Is it based on the value of the home or prevailing market rents?

What will happen if rents are not paid?

Re: being able to buy back the home at any time, once the rent is adequate and is paid, I wouldn't necessarily have a problem with this as it's just like an interest only mortgage (again, once the rent would cover the interest and it is actually paid).

The rent will be set at LA levels for that area, income in the home etc.

Do you not have an issue with being able to buy the house at a large discount and at that set price even well into the future with no account for inflation

 

[Firefly]

The rent will be set at LA levels for that area, income in the home etc.

This could be a lot lower than someone renting the same house privately and I would have an issue with this. Again, a reward for not paying your way, and a kick in the teeth for others paying rent privately.

Do you not have an issue with being able to buy the house at a large discount and at that set price even well into the future with no account for inflation

The 10% discount is generous alright, but I don't have an issue with someone being able to buy the house outright at today's value, once the rent paid in the interim would match the interest that would have been charged and that the rent was paid in full. This to me would be akin to an interest only mortgage that would enable the mortgage holder to buy out the house at the end at today's price.

Edit, just to add...I would suspect giving the person the ability buy out the house at any time into the future is being done to ensure that the house is kept in a good condition. If you had no chance of being able to buy the house again there would be a lot less incentive to keeping the place well. All this would cost the council in upkeep. Just look at some of the social estates around the country!