Examination of Witnesses (Questions 80-92)
RT HON
MARGARET BECKETT
MP, RICHARD MCCARTHY,
SIR ROBERT
KERSLAKE AND
PETER MARSH
16 DECEMBER 2008
Q80 Chairman: Do you have any idea
of timescale?
Mr McCarthy: We should have a
paper this week which will allow us to engage with Treasury and
lenders early in the New Year.
Q81 Mr Betts: One of the issues which
came up this morning was that of repossessions and clearly many
people are worried, particularly as Christmas is coming up and
looking at the next year, about the possibility of unemployment.
There was a welcome for two things the Government have done, both
the mortgage rescue package, which will help about 6,000 home
owners and stop them being repossessed and offer them some alternative
form of tenure, and also the changes to the arrangements for people
who become unemployed so their mortgage can effectively be paid
for them more quickly, after three months rather than nine months,
have been brought forward to January now. Both those were welcomed.
However, two issues were raised. One was that the amount of finance
for the mortgage rescue package may not be sufficient, so it may
be that we have to help more than 6,000 people in difficulties.
Secondly, the problem of people who do not lose the totality of
their income but lose a part of it. Very often mortgages can be
supported by two incomes in a family and if one person becomes
unemployed that can put them in real difficulties. How can we
deal with those sorts of issues which are undoubtedly going to
arise in the next few months?
Margaret Beckett: First of all,
with regard to the issue of the mortgage rescue scheme, I take
the point about whether or not it will be sufficient. Perhaps
we could bear in mind that there are basically three areas. One
is that if you lose your job and there is no income coming into
the family home you are eligible for the support scheme which
the DWP has been running but which is now a lot better. Not only
is it 13 weeks instead of 39, but also the limit of the mortgage
on which you can seek assistance is now £200,000 whereas
it was £100,000. Also, we had put some money in to assist
with it and as a result of the bank rate coming down that money
can stay there and will mean that they will continue to meet an
interest charge which was perhaps slightly higher than the standard
variable or the routine. Even people who are paying a higher interest
charge may still get more help than they would have got initially.
That scheme has improved a good deal. Then there are the people
who are eligible for the mortgage rescue scheme. These are people
in the vulnerable groups who would otherwise trigger the homelessness
legislation where a local authority would have to find them other
accommodation on the homelessness criteria if they lost their
home. It is actually a more restricted group than I think the
assumption there had initially been and that is partly why the
costs of the scheme are as they are and it is the 6,000. It was
entirely the issue of those who fall outside the criteria for
both of those two schemes which led to the Government exploring,
and we are working now very actively with Treasury, with the FSA
and the lenders, to see what scheme can be put together mutually
to help people whose income has diminished. It is not for people
who are trying to get out of paying their mortgage but people
who want to pay their mortgage, people who are trying to continue
to do so, people who have every right to expect that in the longer
term they will be able to return to paying the full amount but
in the short term either one of them has lost their job or lost
their overtime or whatever and they have had a sharp drop in income.
That is a scheme which we think will have wider application potentially
and on which we are working now with the lenders.
Q82 Emily Thornberry: Which could
include leaseholders.
Margaret Beckett: Interesting
question.
Chairman: Which I am sure you will be
looking at.
Q83 Emily Thornberry: Which I was
looking at.
Mr McCarthy: The intention is
that the work on it will apply to all people who have a mortgage
on their home who have an income shock and that income shock is
not covered by the benefits we have of the reduction in base rate,
who have a sustainable position but need some help in the short
term, hence the proposal announced by the Prime Minister to assist
lenders to roll up interest for a period of time.
Q84 Mr Betts: There might be some
people whom you could help with this scheme who otherwise would
be better off going on benefits and getting their mortgage paid
by that route which would not be better in the long term for them.
Margaret Beckett: Apart from my
very real concern for people who through no fault of their own
would be in real difficulty but did not come within the confined
parameters of the existing scheme, there was also a thought that
it would be a crazy thing to have a perverse incentive for people
to make themselves unemployed if they do not need to do so.
Q85 Mr Betts: Do you have any idea
of the timescale for when this is going to be brought in?
Mr McCarthy: We cannot announce
that yet because we are working on both the practicalities of
the operation, the need to engage with all lenders, which is extremely
active at the moment I can assure you and the right legal framework.
I hope that ministers will be in a position to announce that shortly.
Margaret Beckett: May I just say
one other thing which may or may not be in the Committee's mind.
As you know, part of the concern that we had was about the impact
on confidence of the fear of repossession which still seems to
be extremely strong. I suspect one of the reasons for that is
because, as I understand it, when we were in this position last
time in the 1990s nothing or very little was done to help people
to avoid repossession. There was some money to help RSLs buy up
properties which had been repossessed and which were a drag on
the market, which is how we got into the position of not buying
necessarily suitable property, but there was nothing to help the
individual or the family to try to prevent repossession. It is
that sort of folk memory perhaps which is doing harm now and that
is something we want to try to overcome.
Q86 Mr Betts: Do we have cooperation
from the lenders now and they are being responsible, because obviously
these schemes are a final safety net but in the meantime we should
be making sure that people are getting proper service from the
lenders, proper alternatives offered.
Margaret Beckett: I cannot recall
whether I said this to the Committee last time or not, but when
you realise that the average cost to a lender of pursuing a repossession
all the way through is about £35,000, it seemed to us, and
was one of the reasons why we felt incentivised to come forward
with some of the proposals to the lenders, that it might be in
their interests too to avoid incurring those costs to no useful
purpose and also with the outcome of having people who are potentially
good customers, who have been before and probably will be again,
whom they are not supporting.
Q87 Andrew George: Is it possible
for me to ask a question about another side of the same coin,
that is what your market intelligence is telling you about the
impact of all this on the private rented sector both from the
point of view of those that are repossessed and therefore evicted
as tenants of buy-to-let property or the fact that there are more
properties coming into the market and therefore the impact on
private rent levels.
Margaret Beckett: I do not think
we have much in the way of evidence yet. Although there is this
very, very high level of fear of repossession, it is only something
like 0.16% which has actually gone ahead. It may be a bit early.
Mr McCarthy: I can give you one
very important piece of information which is tucked away in the
PBR announcement which is that the Ministry of Justice is looking
at extending the minimum level at which the courts will require
notice to be given to a buy-to-let tenant when their home is repossessed.
We are trying to focus on the tenant and not the person who was
the speculator, who bought the property. We are looking to extend
what is the current minimum period of two weeks to seven weeks.
That is action which has been made by Government in response to
looking across the piece at who could be most affected individually
as an occupier in this way.
Margaret Beckett: I had not fully
appreciated you were talking about people involved in such properties
but part of the idea of that is not only to be fair to the tenants,
who sometimes in the past have found themselves evicted completely
out of the blue, but also to give space for people to focus on
the facts of the case, where it may well be that the tenants have
assiduously been paying their rent and therefore there is an income
stream. There may be a dispute between the lender and the investor,
but there is not necessarily a dispute between the lender and
the tenant. That also may give scope for realising where mutual
interest lies in the long term.
Mr McCarthy: We are aware of some
lenders who are then at the present time sticking with the tenant
and actually going long beyond that and enabling them to go on
doing that.
Q88 Mr Betts: There was a story in
the press a few weeks ago about a couple of lenders who were probably
not quite mainstream and thought they had found a way round. They
were evicting people who had not paid their mortgage without going
to court by doing it rather quickly. Is there a loophole there
that action has been taken to try to stop up?
Margaret Beckett: I am only aware
of one case. One could not say it is a loophole. The law has not
changed but the Ministry of Justice are looking at that.
Mr McCarthy: Yes, that is something
they are actively reviewing. It is more complicated than the media
reports would lead you to believe, but there is a surprise! They
are being looked at by MoJ.
Q89 Chairman: You mentioned that
land values were falling and housing associations were making
use of that. Do you actually have numbers of RSLs who have purchased
land at lower value and/or councils? If you do not have it now,
can we have it subsequently?
Mr McCarthy: No, we will have
to ask about that.
Q90 Chairman: We have quite contradictory
evidence about whether land values are really falling. If land
values fall too much owners do not sell. They are like home owners;
they hang on to it.
Mr McCarthy: You will have a mixture
of behaviours out there and there is very strong evidence from
the property sector and advisers about land values falling and
we can share with you the data which we can obtain. It is a hard
area in which to get hard data. That is largely accepted. It will
mean that in some cases land will not be put on the market to
be sold.
Q91 Chairman: Precisely.
Mr McCarthy: In other cases people
need to sell land because they are forced to generate cash. One
of the advantages of the HCA is their ability to play into that
market.
Sir Robert Kerslake: Entirely
right. The key point to make is that this is a moving picture
and the extent to which people are acquiring land will change
over time. We may well see some of that accelerating in the next
few months.
Q92 Chairman: If you do have some
hard data, we would like to see it.
Sir Robert Kerslake: Yes.
Mr McCarthy: It is more about
future opportunities.
Chairman: Thank you all very much indeed.
It has been a very productive morning. We almost certainly will
be returning to this issue in the New Year. Thank you.
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