Tag Archives: Home Owner and Debtor Protection (Scotland) Act 2010. Repossessions. Bankruptcy

It’s Premature To Say Repossessions Risk Has Gone

0 comments

The recent announcement by the Council of Mortgage Lenders that their prediction of 53,000 repossessions in 2010 is now pessimistic, should not be taken as a sign that the worst is over. This failure to get predictions correct could create a culture of complacency amongst politicians, especially, as it follows on another inaccurate prediction by the CML in 2008 that there would be 75,000 repossessions in 2009.

That last prediction led directly to the current Scottish Government facing attacks last year that they weren’t doing enough to prevent rising repossessions and even calls for new legislation to be brought forward and passed in a day. New legislation has since been brought forward in the form of the Home Owner and Debtor Protection (Scotland) Act 2010, which arguably will ensure Scotland, come October, will have the highest level of legal protection in the UK for home owners facing repossession.

Part of the problem is that many of the protections that were introduced for home owners at the height of the credit crunch were arguably a knee jerk reaction and too much too soon. First of these was the UK Government’s Home Owner Mortgage Support Scheme introduced in January 2009, which allowed home owners struggling to pay their mortgages to enter into agreements with their lender and avoid repossession, providing they could pay at lest 30% of the interest on their mortgages. Then in England and Wales the Home Owners Support Fund introduced variations of Scotland’s own mortgage to rent and mortgage to shared equity schemes. Even the Department of Works and Pensions Support for Mortgage Interest Scheme was extended to allow more people to apply quicker.

The problem is the Home Owner Mortgage Support Scheme was intended to operate only for two years and the length of time applicants would be able to benefit from the DWPs Support for Mortgage Interest Scheme was reduced to two years, as part of the changes extending access. It has now also been revealed in England and Wales the amount available to home owners applying for the Home Owner Support Fund will be cut, although the total budget will remain the same, with the LibCon coalition arguing that reducing the deficit and keeping interest rates low will do more good. The problem is, however, if you reduce the amount available to  local authorities and housing associations to buy homes, so home owners can remain in them as tenants, less social landlords will participate.

There is also the problem that one of the reasons repossession levels have not materialised at the level predicted is with the bursting of the housing bubble, many homes were thrown into negative equity, meaning many lenders were happy to provide customers with more time to pay,  as even if homes were repossessed, the full amounts owed to the banks would not be repaid.

The danger is now with the Home Owner Mortgage Support Scheme possibly due to end in 2011, cuts to to the English and Wales Home Owner Support Fund and many of those who claimed Support for Mortgage Interest nearly exhausting their two years of assistance, repossession levels could begin rising. Add into this the LibCon Coalition deficit cuts, the prospect of increased unemployment and rising housing prices (with lenders possibly being less willing to show forebearance to customers) and it is clear we are no where near out of the woods yet. There is also no guarantee at present that we will not see an early return to increases in interest rates (although increasingly unlikely).

Even in Scotland our own Mortgage to Rent and Shared Equity Schemes are not without their faults, with increasing number of advisers complaining it is harder to find landlords willing to purchase homes and that the valuation figures used to decide which home owners can participate are too low.

It is vital that with the worst predictions of the Council of Mortgage Lenders failing to materialise and increasing budget cuts, we do not become complacent and think  there is no more that can be done. It is telling that although the number of repossession actions in Scottish courts fell  last year by 20% , they are expected to increase by 11% this year.

Repossessions, like unemployment, as an effect of a recession generally lags behind other effects. Scotland may be out of recession, but the worse social effects could be with us for some time.

MSP John Wilson’s Draft Bill Proposal Before Its Time

0 comments

It is with disappointment today I discovered John Wilson (Central Scotland MSP) has decided not to submit a final proposal for his private member bill the Proposed Enforcement of Local Tax Arrears (Scotland) Bill. The proposal was ahead of its time as it now transpires many local authorities are dusting off old poll tax bills from over 19 years ago  to  raise cash for their cash strapped budgets.

The bill, which related to council tax arrears proposed:

  • that local authorities should only be able to pursue council tax debts for five years, as opposed to the 20 years they are currently able to; and
  • that the summary warrant procedure used to constitute council tax debts, denying debtors a right to be a fair hearing,  should be abolished

The fact the bill will not be going forward in this session is a loss after being supported by Citizen Advice Scotland and Consumer Focus.

However, I would support its reintroduction in the next parliamentary session, but believe it should be strengthened to  ensure

  • that no debts, even once constituted by decree or its equivalent, including summary warrant, should be automatically enforceable after five years, without the permission of the court; and
  • that the summary warrant procedure should not be abolished, but a right of recall introduced.

I am hoping to write a paper on these proposals in the coming week and will post them on here.

New Scottish Repossession Laws May Help Clydesdale Bank Customers

0 comments

New laws due to be introduced in September may provide some safeguard to the thousands of Clydesdale and Yorkshire Bank customers in Scotland who are now facing increased mortgage payments.

Up to 18,000 customers, it transpires, have been  paying too little for their mortgages, meaning they are unlikely to repay them within their agreed term. The problem arose after the banks tried to introduce new inhouse software to calculate customers mortgage payments, but it appears the banks have been underestimating the capital element of their customer’s payments. The error went unnoticed whilst interest rates were at a higher rate, but with the recent drop in the Bank of England’s base rate, the error has been discovered. The mortgages that have been affected are tracker and variable rate mortgages.

Although the Bank’s have claimed the majority of customers will only see increases of up to £25 per month, some customers have complained they have received letters stating their payments will  increase by up to £300 per month.

For many these increased payments will not be possible and may result in customer going into arrears and facing action for repossession. It is likely, however, the Banks will be under pressure to take steps to assists customers, possibly by extending the life of the mortgages due to new laws due to come into force in September.

Sheriff’s in Scotland, as a result of the new Home Owner and Debtor Protection (Scotland) Act 2010, will be required to consider whether lenders have taken reasonable steps to assist home owners in paying off any arrears owed before they raise action to repossess properties. In the case of these banks, due to the fact many customers will have been misadvised as to what their monthly payments would be, the Banks will be under pressure  to take steps to assist customers, possibly by extending the length of mortgages and allowing customers to continue making payments at reduced levels. If the Banks don’t, Sheriff’s may find that they have not taken reasonable steps to assist their customers.

Sheriff’s will not be able to force lenders to change the mortgage products customers have, but they will be able to look at the circumstances that caused the arrears and decide whether in individual cases the Banks should have their powers to repossess suspended, usually where the home owner is making serious attempts to repay arrears.

It also appears many customers may be entitled to raise complaints with the Financial Ombudsman Service or raise actions for compensation.

Clydesdale and Yorkshire Bank customers  should seek legal advice immediately where they are struggling to meet increased payments.

Scotland’s Debt Landscape Possibly Changing

Scotland’s Debt Landscape Possibly Changing

0 comments

The recent statistics producced by the Accountant in Bankruptcy has shown that the Scottish debt landscape has begun to change.

The number of sequestrations (formal bankruptcies) in the first quarter of this year remained the same with the number for the previous quarter (3,139), but showed a 16 % decrease on the numbers from the same quarter last year.

A similar story can be told for protected trust deeds, with only 2,239 becoming protected in the first quarter, which although up 10 % on the previous quarter was down 13% on the same quarter for last year.

The real story, however, is the 495 debt payment programmes entered into under the Debt Arrangement Scheme, showing a 19% increase on the previous quarter and a 60% increase on the same quarter last year.

The Debt Arrangement Scheme is a statutory alternative to personal insolvency and allows debtor to repay their debts in full, whilst providing them with protection from their creditors. Importantly, it also avoids debtors having to realise assets and  allows interest and charges on debts to be frozen and eventually written off if the programme is succesfully completed.

Launched in October 2004, the scheme has had a troubled beginning with a poor uptake and problems with debtors unable to access it. This has largely been because access is exclusively through an approved money adviser and there has been a shortage of approved money advisers. This has now been partly solved with increased private sector involvement and it is now believe up to 10% of all applications may now be originating in the private sector. Concerns have, however, been raised in relation to private sector involvement with some private sector providers charging debtors up to £1,800 to access the scheme.

However, the increase in the number of the debt payment programmes may not just be a sign that debtors are keen to repay their debts, but that they have no other remedy available to them.

Those  who enter the Debt Arrangement Scheme have to have disposable income to make payments  and, therefore, it may be that increasing numbers of  white collar debtors may be using the Scheme where there has been a drop in the household income and they are unable to use personal insolvency as a remedy. This may be as in personal insolvency debtors are required to realise the value of  assets, such as homes and cars for the benefit of creditors. One of the advantages of the Debt Arrangement Scheme is that debtors do not normally have to realise their assets for the benefit of their creditors.

This creates a problem, however, for those debtors with assets, if they are unable to realise those assets (it may make them homeless or leave them unable to get back and forth to work), resulting in them having to enter repayment plans with their creditors that could take 10 years or more.

The Scottish Government will be introducing a new route into seqeustration also in October, which will allow debtors who cannot repay their debts as they fall due to apply for bankruptcy. This may result in an increase in the number of bankruptcies each year, but may equally result in a reduction in the number of protected trust deeds. In addition to this, the Government, as part of the new Act, will also be introducing new forms of protected trust deeds that will allow debtors to exclude their home from it, allowing them to keep it even though they are personally insolvent. This, however, is likely only to be  in cases where there are small amounts of equity in the home.

It is clear that Scotland’s debt remedy landscape  is now beginning to shift with one debt payment programme being entered into for every four protected trust deeds being signed. It could be tomorrows debtor landscape is one where there is more debt payment programmes and less personal insolvencies. It could also be with the decreasing number of personal insolvencies and increasing numbers of debt payment programmes, Scotland’s personal insolvency industry will now begin diversifying to offer the Debt Arrangement Scheme as one of the services they can offer.

Debt Arrangement Scheme

Accountant in Bankruptcy