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Stop repossessions, say UK Government

Catherine Deshayes

The Government has today announced new rules to protect homeowners who may be facing the threat of repossession - so we will soon see the introduction of new court protocols to help make repossessions a last resort...

At the beginning of this year, as the credit crunch began to impact the property market, a record number of repossessed homes were going under the hammer at property auctions as banks scrambled for liquidity.

Official figures showed that actual repossessions rose to an eight-year high of 27,000 last year, with sub-prime lenders bringing more than half of UK repossession orders, despite accounting for only six per cent of total mortgages.

Now, with repossessions continuing to rise and consumer confidence at an all time low, the Government is stepping in to help protect homeowners who may be staring repossession in the face.

One of the Government's plans is to bring companies engaged in sale and rent back schemes, which may target vulnerable home owners, under Financial Services Authority (FSA) regulation.

Today, October 23^rd 2008, the Master of the Rolls approved the Civil Justice Council's new protocol for the courts in mortgage repossession cases.

This sets out clear guidance on the steps that lenders are expected to take before bringing a claim in the courts to ensure that repossessions are a last resort.

Lenders will now be expected to demonstrate that they have tried to discuss and agree alternatives to repossession when borrowers get into trouble with their mortgage repayments.

If a case reaches court, lenders will be required to tell the court precisely what they have done to comply with the protocol.

The Government will also be publishing a consultation paper on bringing sale and rentback under FSA regulation, responding to recommendations from the Office of Fair Trading's (OFT) study into the Sale and Rent Back market which was published last week.

Other plans to help homeowners

These are not the only plans to be recently introduced by the Government. Other measures include the £1 billion ‘Mortgage Rescue Plan' which will offer struggling homeowners help in saving their houses from being repossessed.

It will also help people to get onto the housing ladder - thus helping the housing industry too. The scheme aims to help people facing imminent repossession of their homes, help first time buyers with joint incomes below £60,000 per annum, and allow councils to build houses in inner city areas.

This plan may help to cut repossessions rates as it allows homeowners to sell the whole or part of their house to the council. That way, councils may allow them to sell and rent back their home.

However, the downside is that the plan will only be available to 9,000 families across the UK. As the total repossessions expected this year are around 45,000, this plan is not enough to help all those in need.

There is also help for first time buyers. Up to 10,000 first time buyers will be helped with a ‘loan' of up to 30 per cent of the price of a new build property they want to buy.

This loan can be paid back after five years. This scheme aims to help the buyers and the developers who are struggling to sell their new build city centre apartments.

Positive reactions to the new repossession regulations have already been voiced, with Chief Secretary to the Treasury Yvette Cooper saying, "We need to make sure we help those who might be hardest hit in the tougher times ahead, ensuring repossession is the last resort not the first.

"We also want to make sure that vulnerable homeowners are protected from exploitation and dodgy deals."

Housing Minister Margaret Beckett said, "We must ensure that every avenue has been explored before lenders seek to repossess homes.

"These new measures will further protect the most vulnerable households in the current economic climate.

"We have expanded free legal representation in county courts for households at risk of repossession; we have provided more free debt advice and will continue to work closely with lenders through this difficult time.

"It is important that households who have concerns over their mortgage seek advice at the earliest opportunity, starting by speaking to their lender," added Ms Beckett.

Peter Bolton King, Chief Executive of The National Association of Estate Agents, (NAEA) said, "As an Association, we are pleased that the protocol has been published today, it will come as a welcome relief to many homeowners throughout the country, especially in the current climate.

"However, following this announcement it is now more crucial then ever to ensure that the correct procedures are followed, allowing repossession to be seen truly as the last resort.

"Additionally, the Government also proposed that companies engaged in sale and rent back schemes, which may target vulnerable home owners, should be brought under FSA regulation.

"We fully support this idea, as recently the Association has been receiving an increasing number of enquiries from homeowners who are worried about the decisions they make and whether the company they are dealing with is genuine.

"Whilst many companies involved in this sector have been acting correctly, unfortunately there are still some companies out there who have been giving cause for concern. Therefore, it is refreshing to see the Government take action and restore some confidence back in the market," added Mr Bolton King.

Picture by amishah