Lenders failing to comply with possession protocol

Nia Williams

December 15, 2009

AdviceUK, Citizens Advice and Shelter say the government package of support for homeowners is making a difference, but the report shows there are still gaps and too many homeowners are falling through the net. They are calling for urgent action by lenders, regulators and the Government to tackle these.

The report, Turning the tide? is based on detailed research into hundreds of cases seen by advisers who give last minute advice to people at court on the day of their repossession hearings.

It found in a third of recorded cases the lender had failed to comply with new rules – known as the ‘pre-action protocol’ – requiring them to take court action only as a last resort after offering borrowers other options for dealing with their arrears. Despite this, judges took action to address this in only a handful of cases.

In general, sub-prime lenders who specialise in lending to riskier borrowers were found to be taking court action earlier than high street lenders, and a few sub-prime lenders in particular had many more court cases listed than their share of the mortgage market would suggest.

Job loss and other loss of income were the most common reasons given for mortgage arrears, and low income households were the most likely to lose their homes. While Support for Mortgage Interest (SMI) is a benefit specifically designed to help in these circumstances, many borrowers who ended up in court were paying higher monthly interest rates than would be covered by SMI payments and there was some evidence of shortfall in take-up.

The research shows that the advice provided by court duty desk advisers is crucial in helping people with a chance of recovery to avoid repossession. Almost eight out of ten (77%) of people whose cases were analysed in the survey avoided the immediate loss of their home But their circumstances suggested that up to half could find it difficult to sustain the repayments set by the court unless their incomes recover quickly, so they remain at high risk of repossession at a later date.

The report calls on all lenders to comply fully with the mortgage pre-action protocol. It also calls for a fundamental review of private and state safety nets, along with more flexible powers for courts to help borrowers stay in their homes. Funding for free, independent advice in court for people facing repossession action must be maintained as a priority, it adds.

Citizens Advice Chief Executive David Harker said: “Government, lenders and regulators have taken swift and welcome action to protect people affected by the recession from losing their homes unnecessarily. Our advisers see evidence of these initiatives working in many cases, but our research makes it clear that the safeguards already in place to protect people from avoidable homelessness need to be strengthened if they are to succeed in stemming the rising tide of repossessions.”

Kay Boycott, Shelter director of policy and campaigns, said: “Measures to help struggling homeowners are clearly working in many cases but we shouldn’t fail anybody at this time. The most common cause of mortgage arrears is job loss and with 2,000 people losing their job every day, we must close these gaps urgently to ensure every vulnerable homeowner gets the protection they need.

Steve Johnson, Chief Executive of AdviceUK, said: “Court desk advisers play a vitally important role in helping struggling homeowners to remain in their homes. Recent initiatives from the Government, regulators and mortgage lenders are welcome and have assisted many vulnerable households from becoming homeless. However, this report makes it clear that not all lenders are showing forbearance and that additional protection is needed if we are to avoid a repeat of the repossessions crisis of the early 1990s.”

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