Memorandum from Caradon District Council and Cornwall Citizens' Advice Bureaux. (CRED 24)

 

This submission relates to bullet point three of the 14th October "Call for Evidence", that being a view on the "measures to help existing and prospective homeowners affected by the credit crunch". The Government initiative is to provide people facing repossession with assistance to present their case in the Crown Court.

 

The initiative is very welcome and could be enhanced by taking account of the following factors and carrying out the suggested concept proposals.

 

· Prevention is Better Than Cure - To assist the householder early on would minimise stress and indebtedness for the householder, more effectively deploy the voluntary, public and private sector in dealing with the situation...and cost the Government significantly less money in the long term.

· Economic Impact - The Double Whammy - Where the home is also used for the operation of a business, the impact of the loss of the family home is magnified greatly by the loss of the families' means of economic subsistence. This is especially true when the business has secured a loan against the value of the house.

· Low Wages and High Housing Costs result in earlier and deeper impacts - Where low wages and high housing costs exist, the effects of the credit crunch reinforce existing insolvency pressures to greatly increase homeowner difficulties.

· Varney's "Life Events Model" - The wider impact - The loss of a home has a far greater implication for a family than the immediate loss of accommodation. The potential impact extends to a disrupted education for the children, stress and potential mental health impacts for the householders and an enhanced risk of a breakdown in long term relationships.

· "Shelterbox" Approach - The Way Forward Early intervention, available at the first port of call for the householder, should include a "Shelterbox" approach in which the information and support relating to all relevant aspects of the persons situation is contained in one package. The frontline voluntary, public and private sector staff should be trained in dealing with this "first contact" approach and network the case to other sources of assistance. Essentially, an adoption of the principles of the "Business Support Simplification Programme", but applied to the issue of assisting homeowners.

 

1. Prevention is Better Than Cure Whilst assistance at the Crown Court hearing of the case, will materially help the householder, early intervention would result in less cost in terms of stress, indebtedness, service provision and cost to the Government.

 

1.1 Given below is the financial cost to the Government, of temporarily re-housing a family for one year.

 

Amount

Item

£10,500

Temporary Accommodation

£2,000

Support Services*

£7,000

Health Services

£1,500

Police and Criminal Justice System**

£500

Resettlement Costs

 

 

£21,500

Total Annual Costs

 

 

* Support Services (for example, children develop disruptive behaviour in school that requires dedicated intervention - a Council's housing service advice and support on re-housing issues)

** Police and criminal justice system (established trends towards higher crime during recessions e.g. money tight, therefore, no TV license, no car insurance, no MOT, some individuals resort to shop lifting!)

 

Source: "Mounting Problems: Further Evidence of the Social, Economic and Health Consequences of Social Justice Problems." Community Legal Services

 

1.2 It should be noted that these figures do not include the benefits that might be paid to the homeless e.g. Council Tax Benefit, Housing Benefit, Income Support, Incapacity Benefit, (Note also that in the event of a breakdown in a relationship there is the clear potential for these bills to be doubled, if there are two households as an eventual result of a house repossession.)

 

2. Economic Impact - The Double Whammy The loss of a home can have two serious economic implications, which might, individually or in combination, apply to the loss of a home. These are:

 

2.1 Operation of a Business from the Home In some cases, the family home is also the place of operation of the family business. Whether the business is an office or workshop in its nature, there is clearly the risk that the loss of the home will also result in the loss of the business.

 

2.2 Trying to determine the volume of people who operate businesses from their homes is difficult. We have taken the number of people within self employment, but advice from the local Federation of Small Businesses contact, is that the methodology below will underestimate the true extent of businesses run from home.

 

 

2.3 The operation of a business from a home (or 'Live Work' to give it its more contemporary title) is particularly prevalent amongst the ranks of the self employed. The National average figure for those in self employment, does not create a clear picture of vital importance of self employment in many areas of the country, for example, rural areas and coastal communities.

 

Location

Percentage of those in Self Employment

UK

10%

Caradon Rural District in Cornwall

16%

Looe - Coastal town in Cornwall

25%

There is a clear potential for a significant double whammy of homelessness and adverse economic impact linked to any rise in house repossessions.

 

2.4 Business Loan Secured Against the Asset Value of the Home Whether used as the base of operation of a business or not, a home is likely to be the asset against which a number of small businesses have secured business loans. The recent substantial increase in interest rates, on such existing loans, is in itself likely to prove a major financial blow for many small businesses.

 

2.5 The medium term risk is that the nations' ability to recover from the recession will be hamstrung by an effective blight on the credit worthiness of a generation of small business entrepreneurs. If a business loan has been secured upon the high pre recession value of a house, and that house repossessed and sold at a much reduced value at a public auction during a fall in the property market, the individual will loose their home and their business, still be in debt and have a resulting very poor credit rating and a history of business failure.

 

2.6 In the circumstance outlined above, the cheaper long term option might well be to freeze the businesses' rate of interest to the pre credit crunch rate, rather than allow the repossession to occur and pay out the sums of money identified at 1.1 above. This would not only benefit the individual business, but would stabilise the stock of credit worthy small business entrepreneurs that are essential to helping the national economy out of recession.

3. Low Wages and High Housing Costs result in earlier and deeper impacts. Where the wage rates are low relative to housing costs, the impact of reduced marginal income (from whatever cause) is felt sooner and with deeper, more profound impacts. This is true across the country as a whole, but Cornwall serves as a good example.

 

3.1 Cornwall has the lowest wage rates of any county in England and Wales. However, its housing costs, are relatively high and have grown rapidly in recent years. The limited amount of residual income is soon eroded by for example, high increases in energy costs or a significant increase in interest rates on existing bank loans secured on a home or on a move by big businesses to increase the length of time taken to pay their self employed and small business suppliers from 60 days to 120 days.

 

3.2 The sharp increase in work undertaken by the voluntary sector in dealing with housing and indebtedness advice can be seen in the figures from the 7 Citizens Advice Bureaus in Cornwall.

 

Credit Crunch in Cornwall

 

Housing Advice Cases

1st October - 31st December

1st Jan - 31st March

 

Actual Homeless

51

88

+72%

Threatened Homeless

97

161

+66%

Access to/Provision of Accommodation

43

72

+67%

Housing Associations Properties

26

59

+127%

Private Rented Sector Properties

266

452

+70%

Local Authority Homelessness Services

22

53

+141%

 

Cornwall Citizens Advice Bureau

 

 

 

Credit Crunch in Cornwall

 

Debt Advice Cases

1st October - 31st December

1st Jan - 31st March

 

Mortgage & Secured Loan Arrears

133

223

+67%

Fuel Debts

100

186

+86%

Rents Arrears Local Authority

57

87

+52%

Rents Arrears Housing Associations

53

64

+21%

Rent Arrears Private Landlords

50

75

+50%

 

Cornwall Citizens Advice Bureau

 

3.3 The difficulties being faced in areas such as Cornwall can be seen in the rate of increase in house repossession. Whereas, the national increase has recently been 17%, the increase for Cornwall and Devon has been 41%.

 

 

4 Life Events Model - The wider impact The adoption of the Varney's Life Events Model has helped to focus voluntary and public sector thinking on the public's need to access effective service provision at critical life events, such as the death of a family member, getting divorced etc. Being made homeless, especially in the circumstances of the home being the location of a business, strikes at several different elements of the life events model, each of which would individually warrant provision of a special service.

 

4.1 A breakdown of Cornwall Citizens Advice Bureaux clients with mortgage and secured debt arrears found that significant numbers had circumstances that would indicate the potential for the problem to have other impacts relating to the core indebtedness problem.

 

Proportion of Clients with mortgage and secured debt arrears

Circumstance

49%

Were households with dependent children

18%

Were single parents with dependent children

13%

Were disabled

10%

Had a long term health problem

 

Citizens Advice 10-10-08

 

5. "Shelterbox" Approach - The Way Forward Early intervention is cheaper and more effective than "picking up the pieces". This is shown by the Cornwall Citizens' Advice Bureau experience in West Cornwall over the last 12 months.

 

Number of Families Assisted

174

Number of Families Saved from Eviction

132

Number of Families still in their homes 6 months later

128

 

5.1 The financial saving to the Government of saving 132 families from eviction using, the Community Legal Services figure at paragraph 1 above, is 132 x £21,500 = over £2.8 million per annum. This does not include the savings in the payment of various forms of benefits.

 

5.2 "Shelterbox" Concept - invented in Helston, Cornwall for disaster recovery and apt analogy for the current situation and how to deal with. The sooner you get to the problem the cheaper it costs to deal with the problem...and the more effective the outcome.

 

5.3 The "Shelterbox" approach should be available in paper, dvd and website form. It should cover all aspects that would be of potential interest and benefit to the householder.

 

5.4 The various frontline staff of a range of agencies that could be the first port of call for a homeowner in difficulty should be trained so that they know that the "Shelterbox" approach can provide useful information and points of contact. Ideally, these staff from various agencies should be trained together to help build inter agency team and the desire, as well the knowledge, to be able to pass on homeowners at risk within the network.

 

5.5 These frontline staff would include, for example, Citizens Advice Bureau, Business Link, Council UBR and Council Tax recovery teams as well as Economic Development Officers, Health professionals, Federation of Small Businesses regional secretaries, relevant bank staff, accountants, Job Centre+, the Samaritans, Chambers of Commerce/Tourism Associations, etc.

 

5.6 There should also be a general awareness raising to promote the idea that homeowners in difficulty are made aware that they are not alone there are avenues of help, such as, the "Shelterbox" and its' supporting network. Groups and organisations that might prove of use in spreading word of the concept, beyond those already in the network, would be the Press, Council Newspaper, Womens' Institute, Voluntary Sector, Rotary Clubs, Lions, doctors, One Cornwall One Stop Shops, local Councillors and MPs

6. Conclusion The current trend towards the rising rate of house repossessions, impacts not only on the wellbeing of those individuals made homeless, but creates a very real risk of harming a significant element of the small business sector that is the cornerstone of the economy. Early coordinated intervention, in the manner outlined above, offers a more cost effective and beneficial outcome than operating only the existing policies.

 

October 2008