RBS to throw borrowers a six-month lifeline
The Royal Bank of Scotland is to give cash-strapped homeowners a six-month period of grace before starting repossession proceedings, the bank has announced.
The troubled bank, which also owns NatWest, said that it will not repossess the home of customers who fall behind on payments for six months from the date they first admit that they have a problem – double the industry standard of three months.
The announcement comes just days after the government was forced to take a 58% stake in the bank for £15 billion, and it is expected that HBOS and Lloyds TSB will be forced to follow suit in the coming weeks.
Announcing the move, Craig Donaldson, managing director of retail banking, said the guarantee would apply to all customers of RBS and NatWest and be valid until at least the end of next year.
“We fully understand that one of the biggest worries facing homeowners in financial difficulty is the thought of losing their home, this is especially true given the current economic climate,” said Donaldson. “We hope that our commitment will reassure our customers that we are committed to providing them with enough time, professional support and the assistance they need to resolve their financial difficulties.”
Andrew Hagger, of price comparison website Moneynet, explains that the guarantee will help. “In the grand scheme of things three months is not a great deal of time to give borrowers in arrears. Six months is far more realistic, and gives them more of a fighting chance to sort something out.”
Hagger explains that from the bank’s point of view it also makes sense. “The last thing lenders want to do is repossess a house in the current market. With house prices plummeting they will have a tough job to sell it.”
However David Holmes, a corporate affairs manager at the Yorkshire Building Society does not believe the six-month lifeline will make much difference. “For many borrowers it is simply putting off the inevitable,” he explains. “We contact borrowers as soon as they miss their first payment and try and work out an affordable repayment plan, rather than waiting for three or even six missed ones. The government is making an example of RBS and hoping others will follow, but it seems somewhat ironic given that Northern Rock has one of the worst repossession records in the industry.”
The government is keen to keep struggling borrrowers in their homes. The recent pre-action protocol states that lenders must prove that they have tried every possible solution to before they get the go-ahead from the courts to repossess a property.
According to recent figures from the Council of Mortgage Lenders, the number of people to have their homes repossessed in the third quarter of the year rose by 12%, with 11,300 properties being seized by lenders— up from 10,100 in the second quarter. The CML expects that a total of 45,000 properties will be repossessed this year.
“Lenders are under the microscope as to how they behave,” says David Hollingworth, a mortgage broker at London & Country. “The pressure is on to help borrowers stay in their homes. Yet despite this move by RBS the message remains the same - contact your lender sooner rather than later.”
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
“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.