The Outlook for Home Owners Mortgage Arrears
When the global economy suffered a downturn following the banking crisis of 2008 many feared that the UK would be hit by a deluge of mortgage repossessions. The last time the UK went into recession housing prices plummeted, interest rates soared and many borrowers lost their homes.
To avoid record numbers of repossessions an action plan was put in place to discourage mortgage lenders from repossessing and to provide more help to struggling borrowers.
Lenders’ Approach to Mortgage ArrearsThe Council of Mortgage Lenders remains publicly committed to limiting the number of mortgage repossessions. The majority of lenders insist that repossession is a last resort. There appears to have been a general softening of the approach taken once a mortgage repossession case has started. Lenders may accept relatively low payments towards the mortgage arrears or postpone repossession while a borrower tries to sell the property or otherwise raise funds. Mortgage lenders are also now bound by pre-action rules which apply to mortgage repossession cases and which encourage lenders to consider taking steps which will make mortgages more manageable for borrowers in arrears.
Several lenders agreed to be part of the Homeowners Mortgage Support scheme. Under this some borrowers may have the interest on their mortgage deferred for up to two years. Some other lenders, who are not part of the scheme, may offer similar initiatives to assist borrowers. However, it has been suggested that fewer borrowers have been helped under these initiatives than expected.
Mortgage lenders are not estate agents and do not really want to be deluged with huge numbers of repossessed properties – especially at a time when the housing market is relatively stagnant. Lenders also do not want high levels of bad debt on their accounts. These factors could contribute to a greater willingness to tolerate a certain level of default than would previously have been the case. Now, more than ever, borrowers in mortgage arrears may find that talking to their lender could result in a mutually acceptable solution being reached.
The Government’s Approach to Mortgage ArrearsAt the height of the economic crisis several government initiatives were introduced to help those in mortgage arrears. These included:
- The Mortgage Rescue Scheme – under this scheme some of the worst-off and most vulnerable households received financial help to stay in their homes. This could either take the form of a shared equity loan or in some cases the property would be bought and then rented back to the borrower by a registered social landlord.
- Changes to the rules on the payment of Support for Mortgage Interest – previously borrowers had to wait for up to 39 weeks before being entitled to help from the Department for Work and Pensions with their mortgage payments. In addition the payments would only contribute towards the interest on the first £100,000 of the loan. Under the new rules borrowers only had to wait 13 weeks and could claim back the interest on up to £200,000.
Conversely, the Conservative party remains a great supporter of owner-occupiers and would not want to be the government that presides over record numbers of mortgage repossessions, as they were during previous recessions in the 1980s and 1990s.
The Courts’ Approach to Mortgage ArrearsRegular users of the County Courts have observed that there seems to have been a subtle shift in the approach taken by judges in mortgage repossession cases. There appears to be a greater willingness to adjourn cases to give borrowers more time to explore the opportunities open to them before a possession order is made.
Whilst some judges still take a very robust approach to mortgage repossession cases others may be more willing to give borrowers the benefit of the doubt. Rather than looking purely at the situation as it stands on the day of the hearing some judges are more willing to take into account the future likelihood of a borrower to clear the arrears on their account. However, borrowers should not become complacent about the prospects of a possession order being made. If there is no chance that payments will be maintained going forward, or if the property is in negative equity, an outright possession order remains a likely outcome of a repossession case.