08 Mar 2012

The Scottish Government's Mortgage to Rent Scheme

The Scottish Government's Mortgage to Rent Scheme

Catriona Milne, Solicitor, explains what the Scottish mortgage rescue scheme is and how works in practice.

Catriona Milne, Trainee Solicitor, explains what the Scottish mortgage rescue scheme is and how works in practice.

A recent upsurge in Mortgage to Rent Applications has meant an expansion to our dedicated Mortgage to Rent team that is tasked with monitoring applications’ progress. The expansion will ensure that the applications are concluded as quickly as possible in order to avoid unnecessary delay and cost. This ever increasing trend of applications does not seem to be slowing and as such, it is vital that lenders are not only aware of the scheme, but understand what is involved.

What is Mortgage to Rent?

The Scottish Government Home Owner Support Fund (‘HOSF’) operates the Mortgage to Rent Scheme for those borrowers who are in financial difficulty and struggling to maintain their mortgage repayments.

The Mortgage to Rent scheme provides the borrower with an opportunity to sell their property to a social landlord (such as a local authority or housing association) and continue to live there as a tenant.

To be eligible for the Mortgage to Rent scheme, a borrower must meet certain criteria, in particular:

  • A borrower must have failed to reach an agreement with their lender on how to manage their arrears; 
  • The borrower must have been unable to make their contractual monthly instalment for 3 months, and must have at least one month cumulative arrears on their mortgage; 
  • They must have sought independent legal advice from the Citizens Advice Bureau or a similar organisation; 
  • They must not be eligible for any other UK Government support schemes, such as Income Support for Mortgage Interest; 
  • A borrower under the age of 60 must not hold capital of more than £2,000 and a borrower over the age of 60 must not hold capital of more than £4,000.  

This is not an exhaustive list and other criteria do apply.

Post-Application Process

Once a borrower is deemed eligible for the Mortgage to Rent scheme, the first step in the process is for the HOSF to instruct a valuation survey of the property in order to determine the adjusted open market value and confirm whether necessary repairs are required to be carried out.

The Scottish Government have set maximum valuation levels for eligible properties, depending on the size and location of the property. If the property is valued too high then the property will be ineligible and the borrower’s application will not progress to the next stage. If the survey provides that repairs are required to be carried out to the property and those repairs are valued in excess of £6,000; the excess repairs will require to be funded by the borrower, the secured lender, or another party with an interest in the property. If funding for the excess repairs cannot be found, the borrower’s application will not progress to the next stage.

If there is any residual capital once the sale of the property has settled and the loan redeemed, the borrower is entitled to keep up to £8,000 if they are under the age of 60. If the borrower is over the age of 60, he or she will be entitled to keep up to £12,000. Any residual capital outstanding (after the borrower has kept his or her share) is used to fund the Mortgage to Rent scheme.

The Mortgage to Rent scheme is proving to be a successful alternative to repossession for many borrowers and can often be the preferred alternative for our lender clients. The borrower’s property would be sold at the adjusted open market value, which can often be greater than the market value of the same property at repossession.

Catriona Milne, Solicitor


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