On 20 February, we are due to publish data on UK mortgage arrears and possessions in 2008. It will appear on the same day that the Ministry of Justice (MoJ) publishes information about the number of actions for possession by both lenders and landlords in county courts in England and Wales last year.
Council of Mortgage Lender Press Release – 10 Feb 2009
Publishing our data on the same day as the MoJ figures is designed to help improve understanding of what the two sources of information actually show. It will also illustrate just how wide the differences between the two sets of numbers can be.
What the figures will show
Even allowing for differences in coverage, the two sets of figures are likely to illustrate once again how the number of claims issued in the courts, and the number of court orders made, dwarfs the number of mortgaged properties that are actually taken into possession. In the third quarter of last year, for example, the MoJ data showed that 38,500 claims were issued and 29,500 orders were made (both numbers seasonally adjusted) while, in the same period, our figures showed that the number of homes actually taken into possession was considerably lower, at 11,300.
Our figures do not, of course, capture possessions in the second charge market, which could add between 10% and 20% to the overall total. Even so, it is clear that court action does not inevitably lead to losing possession of the property.
The large difference between the numbers of court actions and actual possessions illustrates the fact that lenders continue to explore workable options for addressing a borrower’s payment problems, even after obtaining a court order, right up to the point of possession. Possession is the last resort, as we continue to reiterate, and should only occur when all other reasonable attempts to resolve a case of mortgage arrears have failed.
Lenders remain absolutely committed to helping borrowers in difficulty help themselves; it is not in their commercial interests to take possession. Similarly, borrowers have a responsibility to address their own problems. Most that do so, and work with their lenders to solve them, succeed in managing down their arrears over a period and avoiding the risk of possession. Any borrower worried about mortgage payments should therefore contact their lender at the earliest opportunity, before a payment is missed, and continue to engage constructively in working towards a solution to their problems.
Although we have not yet finalised the data we are due to publish later this month, we continue to believe that the number of properties taken into possession last year will not exceed 45,000, the forecast we originally made in October 2007. Data we have already published for the first nine months of 2008 shows possessions totalling 30,200.
So, action taken by both lenders and borrowers is already resulting in fewer possessions than we anticipated. The increase in borrowers seeking debt advice is another example of action they are taking to help themselves – an important development at a time when many consumers will have various debts and credit commitments, and not just a mortgage.
In anticipation of the worsening economic outlook, we put a lot of work last year, with members, into reinforcing that mortgage lenders do all they can to avoid possession. We worked on a series of measures intended to ensure that lenders continue to:
* help borrowers in difficulty overcome their problems with solutions tailored to their individual circumstances;
* consider all realistic options to possession, given the borrower’s circumstances; and
* only pursue possession as a final option.
Guidance for lenders
Much of this work culminated in October 2008 with the publication of our guidance on good practices to supplement the existing regulatory rules, and information for consumers on what to expect from lenders if they fall into arrears. Our guidance, which was welcomed by the Financial Services Authority (FSA) and by consumer groups like Citizens Advice, sought to help lenders ensure that their policies for managing arrears fulfil the objective of making possession the last resort and showing that customers are being treated fairly.
It set out to give lenders a practical guide and provide them with examples of good practice against which to benchmark their own policies and procedures. It is not a definitive statement of what lenders should do in each case but rather a reference point against which lenders can evaluate their own policies and procedures.
We also worked closely with the Civil Justice Council as it devised a pre-action protocol, which was applied to all cases after 19 November 2008. Essentially, this ensures that lenders have explored all the options with a borrower before going to court to seek possession of a property. We support the principle of the protocol as one strand of lenders’ commitment to do all that they can to avoid taking possession of a property.
Lenders are continuing to take a positive and sympathetic approach to handling borrowers’ payment problems. In practice, there are various options open to them and lenders will:
* use reasonable efforts to reach agreement with borrowers about how they can re-pay any arrears;
* work with debt advisers, if the customer wants this;
* agree a reasonable period of time over which any arrears can be re-paid;
* re-schedule the term of the mortgage, or help the customer switch to an interest-only option for a period, if this is in their interests; and
* consider allowing the borrower to sell the property, as an alternative to seeking possession, if no reasonable alternative can be arranged.
As a consequence of lenders’ forbearance in this worsening economic environment, we anticipate many more customers (tens of thousands) will go through periods of longer term arrears and then get back on their feet, rather than face having their home taken into possession. This is reflected in the substantial increase in our arrears forecast of 210,000 (three months or more in arrears) in 2008 and 500,000 in 2009.
On top of the work we have done with lenders, and with the Civil Justice Council on the pre-action protocol, there are a number of other measures we are supporting to minimise the number of possessions. These include:
* Our successful campaign for the statutory regulation of sale-and-leaseback companies. Some borrowers with payment problems are already considering this option, and the government’s recent announcement that it intends to press ahead with statutory regulation is welcome, given the deteriorating market conditions. It is important to get regulation in place as soon as possible to ensure consumers are protected during the worst part of the housing market downturn. In any case, customers should not choose this option with taking advice, as a range of other alternatives should be considered first.
* Encouraging better liaison between lenders and advice agencies, reflecting a widespread desire to ensure that borrowers have access to good advice, particularly in cases where they may have debts with a variety of creditors.
* More widespread availability of consumer information from a variety of sources, including our own website, the FSA’s moneymadeclear website, the Money Advice Trust and many others.
Despite these measures, the outlook is for worsening mortgage payment problems in 2009 as the recession tightens its grip on the economy. We have therefore forecast the number of possessions to rise to 75,000 this year – despite our work so far, and our support for a variety of measures intended to reduce the number of people losing their homes.
We need to continue to look for other measures that will help contain the growth of possessions, without putting borrowers at undue risk or undermining lenders’ commercial interests.
We welcome, and support, initiatives by other stakeholders, including consumer advice agencies, the FSA, housing associations, local authorities and others that have contributed to helpful small-scale schemes.
If the government wants to have a more significant impact on the number of possessions this year, it needs to widen the range of policy initiatives it intends to pursue.
The proposed home-owner mortgage support scheme will, we believe, have only a modest impact on the level of possessions in the long run. It is unlikely to deliver much over and above what lenders already do in extending forbearance to borrowers in difficulty and meeting existing FSA requirements. However, it is too early to assess how many customers going through the scheme would not already be supported by lenders’ direct action.
We believe there are two other measures the government could implement to keep possessions in check. The first is to make access to ISMI much more widely available at the point of need by households experiencing payment difficulty due to a loss of income. The additional cost of this could be offset by taking a second charge on the property, so that any benefit paid to borrowers could be recovered over time.
The second measure is to make government-backed sale-and-leaseback options much more widely available. Alongside statutory regulation of private firms offering sale-and-leaseback, this could be an effective way of ensuring that this option is more widely used as vehicle for avoiding legal action. It would also help the government achieve its goal of keeping people in their homes in cases where owner-occupation is no longer sustainable.