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IMA – Summer Edition Quarterly account Article from Shelter/National Homelessness
Advice Service
Preventing Mortgage Repossessions
Introduction
From 2005 the number of repossessions for homeowners began to increase and reached a
peak in 2009 when 48,900 properties were repossessed. Such repossession activity raised
concerns that we were facing a similar peak to 1991, when 75,500 properties were
repossessed, leaving large numbers of households in negative equity and a legacy of debts
to repay over the decade to follow.
Since 2009 there has been considerable activity undertaken, to ensure that the number of
households repossessed could be minimised, to avoid a crisis similar to the 1990s.
In 2009 the Department of Communities and Local Government (DCLG) took the lead,
bringing together a number of stakeholders, to develop a comprehensive strategy to prevent
homeowner repossession – stakeholders included the lending industry, Homes and
Communities Agency, debt advice sector, the treasury and local authorities. As a result a
package of measures were introduced from 2009.
The package of measures included:
Mortgage Rescue Scheme (MRS) – a £400m government investment for vulnerable
households (who if they approached their local authority for homelessness assistance would
be considered in priority need). The Mortgage Rescue Scheme provided two options. Firstly
an Equity Loan, effectively buying out second and subsequent high interest secured loans or
charges and replacing them with an affordable low interest equity loan provided by a
Registered Provider. Secondly, Mortgage to Rent (MtR) – allowing a registered provider to
purchase the property and rent it back to the household. MRS operated successfully until its
closure for new applicants in April 2014 and at the time of writing 5,403 households have
completed the process. Mortgage Rescue was closely linked with campaigns and
communications, encouraging homeowners to seek advice. During the life of the scheme
circa 60,400 households sought advice from their local authority, the majority finding
alternative solutions to remain in their home
Homeowners Mortgage Support (HMS) - launched in April 2009, HMS sought to help
homeowners, who had suffered a loss of income, which meant they were temporarily unable
to pay the contractual monthly interest payments on their mortgage.
HMS allowed the homeowner to postpone up to 70% of their monthly mortgage interest
payments for up to two years. This was not a ‘payment holiday’; the deferred payments were
rolled up and added to the principal value of the loan, to be paid back after the homeowner
left the scheme, according to a schedule agreed between the homeowner and the lender.
Interest was charged on any amounts deferred.
Lenders offering HMS had the backing of a Government financial guarantee, which
protected the lender should the customer ultimately default on the mortgage. If, during or
after exiting the scheme the homeowner was unable to keep up with their mortgage
payments, the lender could still repossess and sell the property. If there was a shortfall
between the proceeds from the sale and the amount of money owed to the lender, the
Government would pay the lender up to 80% of the interest deferred while on the scheme.
The scheme was complex and provided limited advantages to the homeowner and as result
low numbers (circa 50) entered the scheme, until it closed in 2011. However to access HMS,
it was a requirement the household should receive independent debt advice and the majority
of households benefited from the scheme this way.
Support for Mortgage Interest (SMI) - in 2009 the government made a ‘temporary’
adjustment to the regulations, which increased the capital value of any eligible loan to £200k,
improved eligibility for older households, reduced the waiting period from 39 weeks to 13
weeks for payments and adjusted the interest rate paid. The ‘temporary’ rules will remain in
place until March 2016.
Wider packages of support to prevent homelessness for households included specific
targeted promotional materials such as the NHAS ‘Are you worried about your mortgage’
leaflet, funding for access to Court Desk advice in every county court, changes to civil
procedure rules to ensure lenders formally notified the local authority once a court date was
obtained, the introduction of the Mortgages Pre Action Protocol, access to debt advice via
targeted funding to the independent advice sector, Preventing Repossession Funding
provided directly to local authorities, encouraging lender forbearance options and enhanced
the Homelessness Code of Guidance ( to ensure local authorities did not automatically find
households intentionally homeless if they had been repossessed, unless they had
deliberately done something or failed to do something which resulted in repossession).
Since 2008 lenders have actively developed a range of lender forbearance options, to assist
households who have temporary difficulties paying their mortgage and have been
encouraged to use repossession as the last resort. However, given that 35,000 households
were repossessed by their lender in 2013 and large numbers have voluntarily given up their
homes, it can be argued that forbearance cannot always prevent the loss of the home.
During the planned closure of Mortgage Rescue Scheme Two, we have been working with a
number of stakeholders involved in the scheme, to understand the key benefits of a national
government backed strategy to prevent homelessness and to understand how stakeholders
plan to support homeowners in difficulty in the future.
Stakeholders have fed back the following information to us.
Joint working across stakeholders has been key, to meet common objectives around
homelessness prevention. Joint working has allowed stakeholders to develop clear targeting
and communications strategies, using a wide range of tools from leafleting, newspaper
articles, home visits, co-location of services, local advice access points, national media
communications, and use of partners to promote options available to homeowners. Joint
working has supported problem solving and innovative approaches to advising and assisting
households. Many local authorities adopted innovative ways of using CPR 55.10, to target
households at risk and were able to offer help at the start of the possession process.
Enabling ‘direct’ and proactive referrals, ensured that households were less likely to ‘fall
through the net’ during the advice and housing options process. Both locally and nationally,
direct referrals have provided clarity of expectation for service delivery from both a
household and stakeholder perspective. Direct referral routes have defined who will do what,
within agreed timelines, managing the advice process more effectively to achieve positive
outcomes for the household.
Joint working has facilitated and benefited from training and support, to develop good quality
advice and housing options services. Better understanding of the importance of debt advice,
has improved the delivery of consistent and good quality financial statements, which are
understood by all stakeholders.
A comprehensive map of independent debt advice has been developed. By understanding
the range of advice available, lenders and local authorities have been able to guide
households to appropriate advice and support and steer them away from fee charging
companies, or those who take advantage of vulnerable households, by seeking to take their
property away from them for a profit.
While it was accepted that MRS was not a cheap prevention option, for many authorities the
scheme saved money, especially in cases where a property had previously received public
investment for disabled adaptations or where the cost of rehousing the household, or placing
them in temporary accommodation, would have been considerable to the authority and the
household.
During the delivery of MRS, we learnt that many homeowners lived in poor quality
accommodation, due to their inability to invest in repairs or essential maintenance. Such
properties were brought up to decent homes standard and so achieved a general
improvement in stock and living conditions in the locality.
A national strategy and scheme, such as MRS, was not without its challenges. Not every
local authority adopted a proactive approach to preventing homelessness or were able to
take advantage of the MRS offer. In areas of high property values, the cost of prevention
could be higher and MRS not viable. Not every area achieved full MRS coverage via their
registered provider and gaps in provision emerged.
Preventing Repossessions Funding specifically for helping homeowners, while allocated to
every local authority, was not ring-fenced and some authorities were unable to protect this
funding internally, to achieve prevention outcomes.
Second charge or ‘subprime lenders’ have not always adopted proactive, positive
approaches to forbearance and in some cases have still pursued possession for relatively
small amounts of debt. They have also not fully engaged with MRS and in some cases
sought to block MRS completions.
Although funding for Court Desk access has continued, the closure of a number local courts
and a reduction in court opening hours, has exacerbated the ability of a household to attend
a court hearing and access advice on the day or to make an emergency application to
prevent a warrant from being executed. For many households, the cost and time required to
attend a court hearing are prohibitive and not all court desks are easily accessible or well
sign posted. There continues to be a worrying trend in homeowners not attending
possession hearings, in some cases believing that no help will be available and that
possession is inevitable.
Looking at what may happen in the next few years, the Council of Mortgage Lenders believe
the number of repossessions may start to increase from 2014. There are a significant
numbers of households have already been in long term forbearance e.g. 12 months or more
and there is an expectation by the regulator (the Financial Conduct Authority) that the lender
should not allow households to accrue unsustainable arrears and household debt. As
property values increase in a number of areas (as a result of current government initiatives
to encourage house purchasing and a very healthy buy to let lending market), it may be
advantageous for lenders to repossess, to reduce bad debts and impaired loan books.
By 2020 it is predicted there are a number of households will come to the end of their
interest only mortgage, many with no vehicle to repay the capital sum. Lenders are already
targeting such households, coming within 3 years of the end of their interest only term, to
discover how the household plans to repay the capital sum. A number of lenders are also
looking at suitable alternative options for such households for example a form of Assisted
Voluntary Sale or for older households ‘lifetime interest only mortgages’ to be paid off on
disposal of the property.
Lenders are examining their loan books, to determine household vulnerability to any
increase in interest charges in the coming years, many are concerned that even a small
increase of 0.5% could tip many households into a position where their housing costs are no
longer sustainable (taking into account low wage inflation and increased households costs
such as fuel, transport and pension contributions).
The Financial Conduct Authority has completed its thematic review of mortgage arrears &
lender behaviour (published spring 2014). The review highlights the importance of lenders
to treat all households in mortgage difficulty, or at risk of arrears, fairly and appropriately and
to move away from a process driven or ‘one size fits all’ response to arrears. The review
also highlights the importance of lenders supporting household’s access to timely
independent debt advice, especially for ‘sensitive’ or vulnerable households. To achieve
this, lenders will need to ensure their frontline staff are adequately trained and supported to
spot the ‘triggers’ to refer a sensitive household to access support.
With the demise of MRS from April 2014, local authorities are currently reviewing how they
will continue to support homeowners in difficulty.
The following is a summary of the types of activities authorities would like to offer:
Continuing to enable access to good quality debt advice, either via ‘in house’ provision or by
working closely with independent advice providers, to both target and provide an effective
prevention service to households in arrears. Advice activity will run alongside continued and
refreshed activity to target households via the CPR 55.10 notifications, alongside local
publicity to promote advice services & regular engagement with Court User groups. Where
there is investment via Advice Service Transition Funding to reconfigure services, the
authority will need to ensure these services still link to access to advice and prevention of
homelessness.
Some authorities are running financial capability training directly to the public, in conjunction
with their local CABx or other advice providers.
Both local authorities and lenders would like to see the continuation of designated points of
contact, to enable them to effectively discuss specific cases, where the household is at risk
of repossession and needs support or advice.
Where authorities still have access to Preventing Repossession Funding, a number are
considering ‘Breathing Space’ interventions, allowing them to provide interest free short term
loans secured on the property, to allow the household an opportunity to recover their
financial circumstances. In some areas authorities are using local credit union facilities, to
administer the loan to achieve efficiencies and also to encourage households to start saving
in the longer term.
One authority has leased accommodation from older homeowners in mortgage debt, taking
on the payment of the mortgage as part of the lease costs, using this accommodation for
temporary accommodation for families (often accommodation owned by older people is too
large for their needs) and providing the older person with a lifetime tenancy in a sheltered
scheme.
Older people in mortgage debt may also benefit from independent advice on equity release,
as a way of reducing mortgage debt and making homeownership sustainable again.
Some authorities are actively looking at MRS replacement offers at a local level. Such
schemes may include targeting ex Right to Buy households in mortgage debt, to take the
property back into public ownership (in some cases using the local authority ability to borrow
money to purchase the property). Authorities may also wish to target households which have
had disabled facilities grants or larger households who would be expensive to accommodate
via a homelessness duty.
A small number of authorities are in discussion with their local registered provider to
consider a Shared Ownership offer for certain households in mortgage debt. Such an offer
would require investment of local authority and registered provider funds.
From the work we have recently undertaken with local authorities, lenders, and advice
providers, it is encouraging to note that while current trends in repossessions are
downwards, stakeholders are not complacent. Many households remain vulnerable to
changes in circumstances, high household debt, interest rate and inflation increases and will
need targeted housing options and other advice interventions to prevent homelessness.
Carolyn Howell
National Homelessness Advice Service Coordinator
Shelter
May 2014