Tag Archives: mortgage to rent

It’s Premature To Say Repossessions Risk Has Gone

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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.

Money Advice Update – April 2009

Money Advice Update – April 2009

First published in the April 2009 edition of SCOLAG.

The first quarter of this year, unsurprisingly, has been one of rumours and speculation for the money advice community.  Advisers have been eager to discover what changes the Scottish Government would introduce to help normal, hard working families with the credit crunch. 

As the picture begins to crystallise, the wait is almost over.

DEBT ACTION FORUM

Fergus Ewing, the Minister for Community Safety, began by announcing on the 13th of January that he was launching a Debt Action Forum to ensure the Scottish Government was doing everything within its powers to assist debtor’s struggling with the current financial downturn. There would also be a special housing sub-group to look at the issue of what else the Government could do to prevent repossessions[1].

The Forum has now met four times and is due to submit its proposals by the end of May.

Already a number of proposals have been considered, such as voluntary protocols for collections agencies and contribution only trust deeds, which may exempt debtors’ homes, with the consent of creditors.

It has also been mooted the possibility of the AIB expanding its functions, to provide an online and telephone advice service[2]. This is the reoccurrence of an earlier debate that took place during the passing of Bankruptcy (Scotland) Act 1993.

Then it was dismissed as a possible conflict of interest and it is believed many of the arguments which were valid then, are still valid today. It has also been expressed that it will be a duplication of existing services, provided by the National Debtline. A service already funded by the Scottish Government.

DEBT ARRANGEMENT SCHEME

The Accountant in Bankruptcy has also announced she will be taking over the full administration of the Debt Arrangement Scheme, including the management of cases. It is hoped this will free up the time of local Money Advisers, in order that they can devote more time to providing face to face advice to clients.

Other proposed changes to the Debt Arrangement Scheme, will be:[3]

  • Debtors being able to apply directly to the Scheme, through an online application process or an Approved Adviser
  • There no longer being a requirement for debtors to have two or more debts, allowing debtors with single debts to apply
  • The abolition of deemed consent, which allowed a creditor’s consent to be implied, when they fail to respond to notifications
  • The extending of the DAS Administrator’s power to apply a fair and reasonable test, in deciding if a payment programme should be approved, unless creditors’ with more than 50% of the total debt, actively express their consent.
  • A requirement for debtors to be able to make a minimum payment of £100 per month, or 1% of their total debt, whatever is the highest, towards their programmes and complete it within 10 years at most

It is hoped these changes will provide one point of contact for all debtors and creditors and increase the legitimacy of the scheme, as a result of it being operated by a Scottish Government agency.

It is also intended, despite the expansion of the gateway into the Scheme, debtors will still be encouraged to seek the advice of money advisers first. Although this will remove the requirement for Approved Money Advisers, it is likely money advice services will continue to play a pivotal role in the Scheme, particularly if the low Income, Low Asset Bankruptcies are an indication of the needs of debtors, where up to 90% of all applications are being made via advisers.

The other change, that debtors with single debts will be able to apply, will address some of the concerns that too much court time is taken up with Time to Pay Directions and Orders under the Debtors (Scotland) Act 1987. However, it is unlikely this provision will not be as successful as it could be, if debtors with single debts are still required to make a minimum payment of £100 per month. In the case of multiple debts, the minimum payment criteria is unlikely to be too great an obstacle, as the average payment in a Debt Payment Programme is already well in excess of this.

The removal of deemed consent will address the AIB’s concerns with lengthy repayment programmes being approved as a result of creditor’s failing to respond (over 90% of DPPs are currently approved as a result of deemed consent)[4].

It is, however, unlikely to do anything to address the lack of participation by creditors, and is likely only to encourage their continued lack of involvement.

BANKRUPTCY AND DILIGENCE ETC (SCOTLAND) ACT 2007

The new statutory Action of Arrestment and Furthcoming appear set to come in to force from April 22nd 2009, as are the further changes to inhibitions (see SCOLAG 375).

Earning Arrestments

From the 6th of April, new Earning Arrestment Schedules will be implemented.

The minimum amounts protected from arrestment, will change  to:

  • Daily: exceeding £13.50
  • Weekly: exceeding £94
  • Monthly: exceeding  £410

There will now be a clear flat rate of arrestment of 20% from any amount above those figures, up to:

  • Daily:  £88
  • Weekly: £617
  • Monthly: £2,680

After which 50% of the earnings will be deducted.

Land Attachments and Adjudication for Debt

Alex Salmond’s announcement in August 2007, at the Citizen Advice Scotland conference, that he will not allow the new diligence of Land Attachment to be used against the principal home, continues to delay its implementation.

Gillian Thompson, the AIB, has also expressed concerns that there may need to be further changes to the BAD Act 2007, as the legislation may no longer hang together.  There is now likely to be a three month consultation on the future implementation of the changes in diligence, beginning in March 2009[5].

What is of more concern, however, is the continued delay in abolishing Adjudication of Debt, which should have been abolished with the implementation of Land Attachments.

The delay allows creditors to increasingly use this diligence, interest in which has been revived, with the number of adjudications being registered in 2007/2008 being in their hundreds, whereas a few years ago, the number registered could have been counted on one hand. 

This situation is clearly contrary to the policy of the current Government, that is unsecured creditors should not be able to attach the principal home of debtors.

Money and Residual Attachments

It is now intended the new diligence of Money Attachments, will be implemented in July 2009. This will allow Sheriff Officers to attach the money of debtors, when it is in their possession, but not when it is kept in a dwellinghouse.

Residual Attachments, which, it is expected, will be used to arrest intellectual property, will be implemented from autumn 2009 onwards.

BANK CHARGES

The bank charges test case continues to work its way through the English legal system.

After the banks involved in the case decided to appeal the decision of the High Court, the Court of Appeal has now decided the charges can be subject to the fairness test contained in the Unfair Terms in Consumer Contract Regulations.

Although the Court refused the right to appeal, it is likely the banks will appeal directly to the House of Lords.

All cases, challenging the legality of the charges are likely to remain on hold, until the case is decided definitively.

MORTGAGE TO RENT AND SHARED EQUITY                    

Mortgage to Rent

The Scottish Government has now released details of their new Mortgage to Rent Scheme, which was launched in March 2009.

The Scheme aims to allow social landlords to take over the ownership of the homes of homeowners who are at risk of losing their property, either as a result of arrears with secured lenders or through insolvency and allow them to remain in possession as tenants.

The eligibility criteria for the Scheme will largely remain the same as before, although a list of average prices for homes throughout Scotland will be published and, other than in exceptional circumstances, it will not be possible to apply should the homeowners’ property be above the average value. The value of the property will be the value of the home, with all necessary repairs carried out to make it habitable.

A £6,000 grant will be available to the Social Landlord to carry out all necessary repairs.

If repairs, costing more than £6,000 are required, the application will only go through if the excess can be found from other sources.

Where there is equity, the debtor will be able to retain £8,000 of it, when under 60 years of age and £12,000m, when over 60 years of age. This source can be used to pay for repairs in excess of £6,000.

It will also not be possible to apply should the homeowner have more than 25% equity, unless the debtor is in a Trust Deed or has an interest only mortgage.

One important change will be that it will no longer be necessary for the home to be in imminent danger of being repossessed or for the lender to have initiated legal proceedings. Now, providing the owner has not made 3 months full payments and there are one month arrears, it will be possible to apply, providing all other UK home rescue schemes have first been exhausted.

Mortgage to Shared Equity

The Government Mortgage to Shared Equity Scheme will be similar to the Mortgage to Rent Scheme, in its’ intentions: that is to keep families in their homes. However, unlike the Mortgage to Rent Scheme, this entirely new remedy aims to allow debtors to retain some ownership of their property.

It will not be open to anyone with less than 25% equity and again debtors will need to exhaust all other UK home rescue remedies first. It will also not be available to any debtor who is insolvent, either as a result of signing a Trust Deed or applying for Sequestration.

Debtors applying for this Scheme will also need to have a capital and interest repayment mortgage.

It is intended a Government adviser will assess what level of share of the debtor’s home the Government will need to purchase, in order to reduce their monthly mortgage payments to an affordable level.

The debtor will not be required to pay rent to the Government for their share of the home. 

In order to apply for both Schemes, debtors will first need to seek advice from an agency that is a Citizen Advice Scotland or Money Advice Scotland member.

[1] http://www.aib.gov.uk/News/releases/2009/01/13215620

[2] http://www.aib.gov.uk/News/releases/2009/03/13163726

[3] http://www.aib.gov.uk/News/releases/2009/03/13114653

[4] http://www.aib.gov.uk/Resource/Doc/4/0000669.pdf

[5] Reaching for Reform, Credit in Scotland Supplement, Credit Today, issue March 2009