New laws to protect homeowners
Gordon Brown has pledged new measures to help people avoid losing their homes as Britain heads towards a recession.
Under new rules that come into force on 19 November, mortgage lenders on the verge of repossessing a property will have to demonstrate to the courts that they have explored all other options before they are given the green light.
The new pre-action protocol recommends that lenders and borrowers work together to come to an agreement over payments, and discuss whether the problem is likely to be temporary or long-term. Lenders must also explore other options to help people stay in their homes, such as extending the mortgage term, only paying the interest on the loan or adding arrears to it.
"We are determined to do everything we can to help homeowners avoid repossessions," said the Prime Minister during his weekly question and answer session in the House of Commons yesterday.
The Council of Mortgage Lenders (CML), which worked closely with the government on developing the new protocols, welcomed the announcement.
Michael Coogan, director general of the CML, says: “The new guidance should help to reassure consumers that lenders are genuinely committed to seeing repossession as a last resort, and that the checks and balances that protect consumers are in place."
Louise Cuming, head of mortgages at moneysupermarket.com, believes that too many repossessions are not be a measure of last resort. “Certain lenders have proven to be quite aggressive in their willingness to repossess, where it would be much more conducive to a successful housing market, to help out those in arrears and work with them to get repayments back on track,” she says.
The move to protect homeowners comes after debt charities accused Northern Rock, the nationalised lender, of being too aggressive when it comes to repossessing people's homes.
According to the CML, around 18,900 people lost their homes in the first six months of the year, some 48% more than the same period last year and the highest figure since 1996. The CML estimates that a "modest" total of 45,000 homes will be repossessed by the end of the year, but some believe the figure will be much higher than this.
Shelter, the homelessness charity, is sceptical. “The CML predicted that figure at the start of the year, and in the first six months of the year we saw a 55% increase in people contacting us worried about losing their homes,” says a spokesperson for the charity. “With the rising cost of living and unemployment at an eight year high, there is no doubt repossessions will be higher than 45,000 homes and the government needs to be prepared.”
The government also proposed that companies involved in sale and rent back schemes, which target vulnerable homeowners by buying their home at a vastly reduced price and renting it back to them – should be regulated by the Financial Services Authority.
“Whilst many companies involved in this sector have been acting correctly, unfortunately there are still some companies out there who have been giving cause for concern,” said Peter Bolton King, chief executive of the National Association of Estate Agents (NAEA). “It is refreshing to see the government take action and restore some confidence back in the market."
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.