The MRS is a government initiative to help homeowners who are at risk of losing their homes. Under the MRS you voluntarily surrender ownership of your home and become a tenant of a housing association instead.

How does the MRS work?

In effect you surrender possession of your home to your lender who immediately sells it to a housing association who will then rent it to you.

What is the legal effect of the MRS?

You will no longer own your home. You will however be able to continue living in it as a social housing tenant and have a tenancy agreement in place.

How much rent will you have to pay?

You will only pay a rent that you can afford. The rent will be reviewed each year based on your income. If over time, your income increases above income eligibility levels for the scheme your rental payments will increase accordingly but you will not be required to move out of your home. If you are in receipt of Mortgage Income Supplement, payment of it will cease.

What are the eligibility requirements under the MRS?

Your must:-

a. be in the MARP and your lender must be satisfied that you can no longer afford your mortgage;

b. have received an offer from your lender to participate in the MRS subject to approval from your local authority;

c. have received independent legal and debt advice;

d. apply to and be approved by your local authority for social housing support;

e. agree to the surrender of the ownership of your house in exchange for a tenancy agreement with a housing association;

f. own the property you live in (which has a current market value of less than €220,000 for Dublin and €180,000 for the rest of the country);

g. not own any other property and be appropriately occupied in your current home;

h. have a long term right to remain in Ireland; and

i. have a net household income of less than €35,000 a year.

What about outstanding debt owed to your lender?

Your lender will arrange with you for repayment, if any, of any remaining part of your mortgage.

An example of an MRS in action is as follows:-

A couple bought their 3 bed semi for €350,000 in 2006. They both lost their jobs in 2009. Their only income was unemployment benefit. They had monthly repayments of over €1,600 per month and were unable to pay this amount. They engaged in the MARP process with their lender. From analysing their Standard Financial Statement there was no prospect of them being able to make the repayments and reduce the capital on their mortgage in the foreseeable future. Their outstanding balance was €310,000 excluding arrears.

Their property was valued by an independent valuer at €175,000 which also meant that they were in negative equity. Their lender reviewed all options and  suggested the MRS. Their lender asked them to obtain both legal and debt advice in advance of applying for the MRS. After obtaining same the couple proceeded and applied for the MRS.

Under the MRS the couple voluntarily surrendered ownership of their home to their lender who immediately sold it to a housing association (a price was agreed between them). The couple then became tenants of the housing association. In regard to the residual debt this was still owed by the couple to the lender but terms were agreed between both parties in that regard.

Ultimately the couple will remain in their original home and pay a rent now based on their income.

What happens if your financial situation changes in the future?

If your financial situation changes, you can buy your house back after 5 years from the housing association. The property price will be set at an open market valuation and cannot be less than what the housing association paid for it initially.

Niall Colgan is a Cork based Solicitor with over 10 years experience in private practice. 

Tags: Mortgage to rent, MRS

Aug 30, 13