CML news & views

Housing minister John Healey spelled out six key challenges for lenders at our recent annual conference. 

Most of them are intended to help borrowers cope with payment problems during these difficult times and avoid possession, if possible. But he also wants lenders to treat tenants sympathetically in cases where they are paying the rent but the landlord is not paying the mortgage. And he urged lenders to support shared equity and shared ownership schemes.

We believe that lenders are already responding positively to each of the minister’s key challenges. Today, we look at them in detail, and explain what lenders are already doing to support his goals.

• “Look hard at every case on your books and ask if your customers could be helped by government schemes.”

Possession remains the last resort, and lenders support initiatives to keep people in their homes where this is sustainable.

Encouraged by the CML, the government has now installed a ‘fast track’ team as part of its mortgage rescue scheme. The team can take referrals directly from lenders. It reports having received more than 400 cases from over 50 lenders. This shows that a majority of firms are supporting the scheme.

When it unveiled the mortgage rescue scheme last autumn, the government said it wanted to help 6,000 households over two years. In the first 11 months, however, only 92 families have accepted help under the scheme. When those numbers were published earlier this month, there was widespread criticism of the level of take-up.

But the number of borrowers who have approached local authorities about the scheme and received free advice on mortgage payments now stands at almost 11,000. Some of these households were previously not even in touch with their lender.

The importance of government schemes – such as mortgage rescue and the home-owner mortgage support scheme – is that they encourage borrowers to come forward and talk to their lender or seek independent money advice. And, in most cases, they have managed to find a solution to their problems without having to resort to the final option of accepting mortgage rescue and becoming a tenant instead of a home-owner.

Income support for mortgage interest (ISMI) is also supporting some borrowers more directly. We are urging the government to maintain the current rate of ISMI at 6.08% to ensure that as many eligible borrowers as possible benefit from it.

• “Take the pre-action protocol seriously and make sure that all staff use and implement it consistently.”

Lenders take the pre-action protocol very seriously, and require all staff to uphold it. We worked with the Civil Justice Council on the launch of the protocol, which requires courts to make sure that every option is explored in cases of mortgage arrears and that possession is only ever the final option.

The new check list helps lenders show to courts that they have upheld the protocol. And, if they fail to do so, the courts can take action. 

•  “Keep in touch with customers in difficulty, and think about the problems for them if they are being contacted by different members of your staff.”

Earlier this autumn, we worked with the Communities and Local Government department and Shelter on advice for lenders about the most positive ways of communicating with borrowers in difficulty.

Our top tips include: 

• making sure that letters are clear, written in plain English and free of jargon;
• reassuring borrowers that possession is not inevitable and that help in pursuing other options is available;
• providing details and case studies of borrowers who have been helped to avoid possession;
• explaining that the lender does not want to take possession and has a shared interest with the borrower in avoiding it;
• providing the borrower with a key contact who will continue to deal with their case throughout the process;
• reassuring borrowers that lenders work with advice agencies, and helping to direct them to sources of help and further information;
• keeping a good record of earlier discussions and using a single point of contact to avoid the borrower having repeatedly to explain the details of their case; and
• making sure that borrowers are advised what they should do next, and are given a contact for help with the next stage.

We are also working with the Communities and Local Government department and the Ministry of Justice on the wording of court orders to encourage borrowers to discuss their case with their lender. Even at that late stage, it is possible to reach agreement and avoid possession.

• “There are still too many people being voluntarily re-possessed, so help reduce the numbers where possible.”

Our latest data showed that, of the 11,700 properties taken into possession in the third quarter of this year, 26% were cases in which the borrower had voluntarily handed back the keys to their property.  Voluntary possessions have been running at a similar level for the last year.

Voluntary cases are those in which the borrower decides to give up the property before legal action for possession has been completed. The government is concerned about borrowers making the wrong decision prematurely, when further help or advice may help keep them in their home. It has launched a free advice line and a new website to help give borrowers the confidence to talk to lenders about payment problems as early as possible, when there is the greatest number of options to help them.

In all cases, lenders already provide borrowers with information about sources of free advice, so we support the government’s initiative.  Many lenders go further, by providing direct links to source of help and advice and reminding borrowers about them in phone calls and correspondence. Lenders share the government’s goal of avoiding possession where possible, and support all responsible measures to help achieve that end.

• “Some people are finding themselves homeless when their landlord stops paying the mortgage, and we want to give them better protection.”

In most cases where a landlord stops paying the mortgage, he will have taken out a buy-to-let loan. In these circumstances, the lender will normally continue to be bound by the tenancy agreement, and the borrower will be in the same position as if the landlord had not defaulted on the mortgage.

Where the borrower has a residential mortgage and has let the property unofficially and without the lender’s consent, we have urged lenders to consider carefully whether seeking vacant possession immediately is the right option. We believe that lenders should take the position of the tenant into account. But it is important to understand that their primary obligation is to the borrower.

Lenders want to help tenants who are behaving responsibly. If the rent is being used to pay the mortgage and there is no conflict with the lender’s primary responsibility to the borrower, we believe it is fair to give the tenant a reasonable amount of time to find somewhere else to live.

• “Give more active support – and lending – to boost shared equity and shared ownership.”

The reality is that shared equity and shared ownership schemes are never likely to help large numbers of borrowers. But lending under them has generally held up better than in the wider mortgage market.

Lenders with an appetite for these schemes prefer the shared equity option. It is less complicated and risky in current market conditions.  Generally, the market would also work more effectively with a narrower range of schemes, and if the government devises and administers them in ways that encourage maximum participation by lenders.

We are working with the Communities and Local Government department and the Homes and Communities Agency to improve low-cost home-ownership schemes and help achieve the minister’s aims.