Mortgage Repossessions
The Council of Mortgage Lenders reports that the number of mortgage repossessions in the first quarter of 2009 rose to 12,800 compared with 8,500 in the first quarter of 2008 and that the number of mortgages with arrears of more than 2.5% of the mortgage balance rose to 205,300 in the first quarter of this year, a staggering 62% up on the the first quarter of 2008. The Council originally forecast that they expected 75,000 homes to be repossessed in 2009, although they now believe that this forecast may be unduly pessimistic. Nevertheless, repossession remains a traumatic prospect for many households.

The Government has introduced a number of measures intended to try and address the rising number of repossessions. We have already referred in section 1.2 to the Pre-Action Protocol on Possession Actions based upon Mortgage Arrears introduced by the Civil Justice Council on 19th November 2008 which replicates MCOB 13 to underline that lenders should see repossession as a measure of last resort having tried but failed to reschedule the borrower’s loan. Some lenders, perhaps as a result of Government pressure, have said that they will delay taking repossession proceedings until the borrower is six months in arrears.

In addition the following measures are intended to assist borrowers with mortgage arrears:

Mortgage Rescue Scheme
The Government’s Mortgage Rescue Scheme is intended to work in one of two ways. First, assistance may be provided through a shared equity loan from a housing authority. The housing authority provides a loan to help with paying arrears or to pay off an existing mortgage in return for a share in the borrower’s equity in his or her home. The borrower must this have significant equity of between 25-40%. Secondly, the borrower may sell his or her home to their local authority for a market value and then rent it back at a lower than market rent. This scheme is targeted at borrowers who have a lower percentage of equity in their home.

To be eligible for this scheme the borrower must be in priority need because they are considered vulnerable. This is defined to include a borrower who is pregnant or who has a dependent child, is elderly or disabled. A borrower will be excluded from eligibility if they have an income over £60,000 a year or own a second home. The borrower must also prove that they have taken steps with the lender to try and resolve their predicament and a recognised debt counsellor has prepared a statement of their financial position.

The scheme is complicated and has not been a success with very few households reported as receiving any help.

Details of the scheme may be found at: http://www.communities.gov.uk/housing/buyingselling/mortgagerescuemeasures.

Mortgage Support Scheme
The Government has been negotiating with lenders to put together a support scheme for borrowers in arrears, a task made a little easier given the Government’s stake in a number of prominent lenders. The result is the mortgage support scheme announced in April 2009.

The idea of the scheme is that borrowers who have a temporary fall in their earnings should be able to ask their lender if they can convert to a mortgage on which they liable only to pay interest and then postpone the payment of that interest for upto two years. The outstanding interest will be added to their outstanding mortgage, the capital loan will also still need to be repaid at the end of the mortgage term. The scheme thus provides only a short term solution to borrowers who temporarily have a lower income stream. The postponed interest and capital will eventually have to be repaid.

The scheme is voluntary but a number of lenders have agreed to take part. Some lenders have agreed to offer similar schemes to their borrowers although they have not sign up to the government scheme. Borrower wishing to join will have to satisfy a number of detailed conditions for instance their mortgage must not exceed £400,000, it must have been taken out before December 2008, they must meet at least 30% of their normal interest only payments and must have been meeting at least some of their monthly repayments in the preceding 5 months. The Government has encouraged lenders to participate in the scheme by agreeing to guarantee the repayment of 80% of participating borrowers’ loans.

Details of this scheme may be found at: http://www.communities.gov.uk/housing/buyingselling/mortgagesupportscheme

Support for Mortgage Interest
For those borrowers who have lost their job, the rules enabling those on Income Support, income-based Jobseeker’s Allowance, or Income-related Employment and Support allowance to claim for payment of their mortgage interest have been relaxed from 5th January 2009. Help is now available after 13 weeks and on mortgages securing upto £200,000.

Court Desk Scheme
The Government has provided funding to support a court desk scheme to provide advice to homeowners facing repossession. The scheme operates in over 200 county courts throughout the country.

Sale and Leaseback
The rising number of repossession has seen an increase in what are dubbed by the companies marketing them as “mortgage rescue schemes”. The company offers to buy the borrower’s home and clear their mortgage debt and then will lease the property back to the borrower. The attraction for the borrower is that they believe that they will be able to both solve their financial difficulties and stay in their own home. The danger with these schemes for the borrower is two fold. First, the price offered by the company may be well below market value whilst secondly, the security of the borrower’s possession under the lease back arrangements may be illusory. The lease offered may only be for a short term with the prospect of rising rents at the end of the term.

These schemes have caused such widespread disquiet that a market study by the OFT called for urgent steps to regulate the practice.¹ The Government has responded by bringing sale and leaseback schemes under the FSA’s regulatory umbrella. To this end the FSA who have made interim proposals,² which come into effect in July 2009, with full regulation following in 2010.

References:
¹OFT 1018 (October 2008).
²FSA’s Policy Statement 09/9 available at www.fsa.gov.uk.