New laws to increase repossessions
New laws are being considered that will make it easier for lenders to force homeowners to sell their homes if they fall behind on credit card or car loan payments.
The new rules will make it easier for personal loan and credit card providers to apply for a charging order, which will allow them to turn unsecured borrowing into debts secured on a homeowner’s property. Once a charging order has been issued, the lender can insist the borrower sell their property to honour the debt.
Currently, lenders can only apply for a charging order when a county court judgment (CCJ) has issued and the borrower is behind on their repayments. Once the new law is passed, however, they will be able to apply once the CCJ is issued even if the borrower is sticking to their payment plan.
Debt charities have warned the new law will lead to an increase in repossessions.
“The number of charging orders has grown by 100% over the past two years, but there is a fear that lenders and credit card companies will seek to recover their debts by issuing even more,” says Alex McDermott, a policy officer at Citizens Advice.
And Beccy Wilks, a spokeswoman for the Money Advice Trust, believes that the new laws could make charging orders even more attractive to lenders. “Should a debtor go bankrupt lenders currently have to join the queue of unsecured creditors and may not get anything,” she explains. “By issuing a charging order, not only will interest on the debt be paid at a statutory rate of 8% - which will make the monthly repayments higher, they get peace of mind.”
According to Wilks, those owing sums lower than £1,000 won’t be affected. “In all likelihood I expect the current limit of £1,000 before a charging order is issued will remain, so those with small amounts of debt will be protected from losing their properties,” she adds.
The new changes are included as part of the Tribunals, Courts and Enforcement Act, which received Royal Assent last year. However, the section on charging orders is undergoing early consultation to be introduced next year.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
A County Court Judgement is a legally issued strike by a lender against a person who has failed to keep to the terms of a credit agreement, usually by habitually failing to make the payments on a loan, credit card or mortgage. A CCJ will appear on a person’s credit record for six years and will certainly affect future applications for credit.