Westminster Hall debate: Home repossessions

ePolitix.com has been requested to provide briefing papers for a number of Bills that are to be debated in this parliamentary session.

This paper provides a selection of responses to the Westminster Hall debate on home repossessions by a number of Stakeholder organisations. The debate takes place on Tuesday January 13, 2009 at 1.30pm.

Background to Bill:

The Westminster Hall debate follows from the Queen's speech of December 3, 2008, where the prime minister outlined the government's plans to assist homeowners facing repossession. In the current economic downturn the number of repossessions is rising, and is likely to increase in 2009. Among the factors behind the expected increase is the high proportion of net income spent on mortgages and the inability to spread debt on other lines of credit.

The government's plans will see homeowners who have lost all or part of their income able to defer their mortgage interest payments for up to two years. These proposals form the main focus of debate, led by Vince Cable.

The Treasury has outlined conditions to qualify for the proposed scheme, the main points being that beneficiaries will have mortgages below £400,000 and will have been inflicted with a loss of income that hinders full mortgage payments, although the loss of income should not be expected to be permanent.

The main topics for discussion will be whether the government has gone far enough with the proposals, whether mortgage lenders are actively involved in the scheme, and what action has been taken with the proposals since they were announced.

Full Responses:

Consumer Credit Counselling Service

People in financial difficulties are best served by being referred to a debt counselling charity where a realistic assessment of each individual household's situation can be made as well as how the lender can help.

Repossession must remain the last option, but it is not in anyone's interest to stay in a property which is not affordable, for whatever reason.

While we believe it is important to offer a range of solutions, we want to see a more flexible approach by lenders generally towards people who are in difficulties with mortgage payments. For example, for some people a delay in the repossessions process may give them the time they need to get back on their feet; for others, it may make things worse by adding to the money they owe. Therefore independent money advice remains fundamental to the success of all of these schemes.

For further information please contact: or 020 7636 5214

Finance and Leasing Association

The Finance and Leasing Association (FLA) is the leading trade association for the second charge mortgage lenders, representing over 80 per cent of the industry.

Second charge lenders are committed to helping borrowers in financial difficulty and possession will only be taken as a last resort, once all other reasonable options have been explored. This briefing paper provides an overview of the industry, the measures currently adopted by lenders to assist customers in arrears and calls on government to extend Income Support for Mortgage Interest (ISMI) to second charge mortgages to help avoid repossession.

Overview of the industry

In 2008, the UK second charge mortgage market wrote an estimated £2.5bn in new business, representing a fall in new lending of around 50 per cent compared to 2007. Repossessions for 2008 are estimated at approximately 1,750. The average balance outstanding on second charge mortgages is currently around £28,000.

The second charge mortgage industry is regulated by both the Consumer Credit Act 1974 (as amended in 2006) and the FLA's Lending Code. Second charge lenders also comply with the Pre-Action Protocol for Mortgages, published by the Civil Justice Council. Together, these impose detailed requirements on how these lenders will assist customers who have fallen behind with their repayments.

Together with their commitment to helping customers, there are strong commercial reasons why second charge lenders only take possession as a last resort. A customer will invariably have also defaulted on their first mortgage, incurring fees and charges. These amounts would all be repaid in advance of the second charge mortgage, which means that the lender is unlikely to recover the full amount of any loan after possession. Second charge lenders therefore want to do all they can to help their borrowers remain in their homes.

Helping customers in arrears

Under the FLA Lending Code, second charge lenders treat all cases of financial difficulty sympathetically and positively. They are also committed to acting fairly, reasonably and responsibly in all their dealings with the customer.

In November 2008, the FLA published Good Practice Guidelines for second charge lenders when helping customers with payment difficulties. These Guidelines provide additional protection for borrowers and build upon the consumer protection provisions already included in legislation and the Lending Code. They also complement the work the government is currently undertaking on responsible lending, which will result in additional industry guidance during 2009.

If a customer is in financial difficulties, second charge lenders will:

• Clearly explain clearly their procedures aimed at helping their customer.

• Discuss with their customer the options, and their implications.

• Ensure that the customer's individual circumstances are taken into account. They will consider whether the causes of the arrears are temporary or long-term, and whether the customer may be able to pay the arrears in a reasonable time.

• Provide the customer with a contact point, in case they have any questions and keep in contact with the customer on a regular basis.

• Ask the customer, in certain circumstances, to complete an income and expenditure form setting out their financial circumstances. They will check that it is reasonable by asking the customer, for example, for some of their payslips and/or bank statements.

• Consider with the customer a repayment plan which is realistic and appropriate, given the customer's circumstances, and which is aimed at helping the customer remain in their home wherever possible.

Action required

It is important that new government initiatives aimed at keeping borrowers in their homes apply to both first and second charge mortgages. We are pleased that the forthcoming Mortgage Rescue Scheme and Homeowner Mortgage Support Scheme will include both types of mortgage. However, Income Support for Mortgage Interest (ISMI), which would pay a borrower's mortgage interest payments in the event of unemployment, is not available for second charge mortgages. This results in a significant gap in protection for those homeowners who arguably need the most assistance. We strongly believe that ISMI should be extended to include second charge mortgages.

As this would be an extension to an existing scheme and would involve low value mortgages, it could be introduced quickly and the cost to government would be commensurate with the protection provided. And the government could protect its investment by taking a subsequent charge over the property, to be realised on eventual sale.

For further information please contact: or 020 7420 9635

Homeless Link

Homeless Link welcomes the debate on Home Repossessions.

The government has recently announced a series of measures, including the Homeowner Mortgage Support Scheme, focused on owner occupiers, and the Mortgage Rescue Scheme, which is focused on those with priority need for homelessness assistance.

Homeless Link believes that further action is now required to support those individuals and families who are at risk of losing their homes in the private rented sector due to repossession of their landlord's property.

Individuals in this situation are unlikely to qualify for statutory homelessness assistance and need help to maintain stable private rented accommodation.
Statistics from the Council of Mortgage Lenders show that eight per cent of all repossessions in the third quarter of 2008 were buy to let mortgages.
For further information please contact: or 020 7960 3071

Law Society

Law Society position on Civil Justice Council Mortgage Areas Protocol

The government's pre-action protocol for mortgage arrears possession cases came into force on 17 November 2008. The protocol recommends that borrowers and lenders should take all reasonable steps to discuss with each other, or their representatives, the cause of the arrears, the borrower's financial circumstances, and the proposals for repayment of the arrears. It also requires lenders to consider alternatives such as changing the length of the term of the mortgage and importantly, for borrowers to be referred for advice.

The Law Society supports the introduction of the protocol which aims to resolve arrears disputes at an early stage without the need for court proceedings and a consequent possession order. We believe possession proceedings should always be a last resort. In addition to reducing the burden upon the courts, this will also help to enable mortgagors to stay in their own homes and reduce the risk of homelessness.

However we consider that the protocol does not go far enough in requiring lenders to apply the correct method of assessing what is a 'reasonable period' when considering offers to pay off arrears made by borrowers. In our opinion, many borrowers take a too restrictive view of what is 'reasonable'. The protocol should have set out why an offer of payment has been declined and also what they consider to be 'reasonable' in the circumstances.

Furthermore, the protocol does little to counteract the recent decision in Horsham Properties Group v P Clark and C Beech in which the High Court held that the use of the power of sale circumvented the protections under the Administrative of Justice Act as the court does not have jurisdiction to interfere with the exercise of the power of sale. As a result, lenders can user their security without obtaining a possession order, thereby circumventing the court's ability to prevent possession.

More needs to be done by government to ensure that evictions only take place where absolutely necessary.

Professional advice will also be needed if these provisions are to be effective. Many unadvised borrowers have possession orders made against them because lenders appear unopposed in court.

The Housing Possession Court Duty Scheme is an emergency service providing people at court and facing eviction with advice and representation. Solicitors working in these schemes can often make a dramatic difference in preventing evictions at the last minute. However as the number of mortgage repossessions rises and more and more home owners seek advice at the last minute to stave off eviction; these schemes are coming under increasing pressure. Continued funding of the Scheme is necessary for these provisions to be effective.

Due to the diminishing number of solicitors providing housing advice under the legal aid scheme, home owners in trouble are best advised to seek advice at an early stage.

For further information, please contact; - 020 7320 5858

Legal Services Commission

The credit crunch and economic downturn are fueling a growth in housing repossessions which is why we have recently funded additional emergency schemes at country courts. Under these, people in danger of eviction from their home or of having their property repossessed can get free legal advice and representation, regardless of their financial circumstances, on the day of their hearing.

We now provide funding for schemes in 94 county courts that hear more than 300 possession cases a year. We coordinate our services with the Department for Community and Local Government which works with local authorities to put schemes in small courts hearing fewer than 300 cases a year.

The temporary accommodation costs for families accepted as homeless can run as high as £16,000 a year. The loss to individuals and families cannot be calculated so easily. The cost of representing someone under our scheme and helping them to keep their home averages out at under £100.

However we advise people facing difficulties to seek help early. The more time an advisor has to prepare, the better the chance people have of keeping their homes. Our Community Legal Advice helpline (0845 345 4 345) gives advice over the phone or can direct callers to the right help.