Assisted voluntary sales: an alternative to possession?
Published: 21 September 2011 | Author: Bernard Clarke
We welcome publication last week of a report by the National Homelessness Advice Service and the housing charity Shelter on the potential of assisted voluntary sales (sometimes abbreviated to AVS) to act as an alternative to mortgage possession. The report, researched by the University of York, examines the potential of AVS as a means by which borrowers could opt to move out of home-ownership and into other forms of tenure in the right circumstances.
Lenders have always been able to support borrowers who wish to sell their property, rather than going through the process of mortgage possession. The research, to which we and individual lenders provided input, outlined some of the ways that firms can assist. In analysing the potential of AVS, the report observed that:
- Deciding that a mortgage is unsustainable is extremely difficult for borrowers. Lenders and advisers both have a role to play in helping them understand the circumstances they find themselves in, and their options, and this can influence how the borrower may eventually leave home-ownership.
- Lenders approach AVS differently, with criteria for and acceptance on to schemes varying greatly between firms. This is partly because AVS is not yet a fully developed concept or standard market practice, and partly because the profile of customers in arrears varies from one lender to another. In the absence of an established model of AVS, its potential to deliver benefits to lenders and borrowers has not been properly assessed. The report says that lenders need a clearer understanding of the regulatory, reputational and commercial implications of AVS.
- Borrower awareness of alternatives to possession is minimal. If borrowers do not understand their options in dealing with mortgage payment problems, they may not make the decisions best suited to their circumstances. Some could have benefitted from knowing about the potential of AVS earlier in the process.
- Once they understand AVS, borrowers in difficulty are generally attracted to the concept. Knowing that they could get help from lenders with barriers to selling their property, such as upfront costs and fees, and support during the process could lead to more widespread use of AVS. But lenders are concerned about managing the expectations of borrowers on how much support they can offer.
- Borrowers with mortgage payment difficulties worry not only about their debt but also about their future housing choices should their arrears become unsustainable. AVS could become more attractive to borrowers if they understood they would get support and advice from lenders, advice agencies and local authorities to help them into alternative forms of housing.
- Local authorities may deem borrowers to have made themselves intentionally homeless if they voluntarily relinquish their property, and therefore no longer entitled to housing assistance. But recourse to AVS should not be seen in this way, and borrowers in this predicament should be entitled to the same support as those going through mortgage possession.
We support the use of AVS as a means of leaving home-ownership in the right circumstances. Lenders now need to reflect on whether a structured AVS offering should sit alongside their other options for dealing with borrowers in difficulty. The report suggests that AVS has the potential to deliver better outcomes for borrowers and lenders than possession in some circumstances. But more work needs to be done before this approach can begin to be a more widely used alternative.