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