Tag Archives: mortgage arrears

Mortgage Arrears to Increase as DWP Mortgage Support Cut

11th September 2010 0 comments

The announcement that the mortgage interest rate that the Department of Works and Pensions pays under the Support for Mortgage Interest Scheme is to be cut, will be devastating for many low income households.

The Scheme, which pays the interest part of a benefit claimant’s mortgage, does so only up to certain levels of interest rates. Currently, that rate is 6.08%, so if your mortgage rate is higher than that, there is a shortfall on the interest part of your mortgage payments which you need to make up. As the scheme only pays the interest part of you mortgage, many claimants, even when they are receiving full payments to the interest, must make additional payments from their benefits to the capital part of their mortgage.

After the 1st October, the rate will fall to 3.63%. This is the Bank of England’s average monthly mortgage interest payment. For many low income families, however, usually the groups that are more in need of help and least able to get the most competitive rates available, this will not be enough.

With increasing signs that mortgage lenders are not allowing borrowers to switch to interest only mortgages, the most vulnerable could see shortfalls, not only in the capital repayment element of their mortgage, but the interest element also.

If further proof is needed that repossessions will begin rocketing out of control under this ConDem coalition, this is it. To date the actions of the previous Government at Westminster and the Government in Edinburgh have prevented repossessions reaching the level predicted by the Council of Mortgage Lenders and in actual fact there is evidence they have fallen.

But not for long!

It’s Premature To Say Repossessions Risk Has Gone

24th July 2010 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.

New Scottish Repossession Laws May Help Clydesdale Bank Customers

21st July 2010 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.