Mortgage arrears and access to mortgage finance - Treasury Contents

1  Introduction

1.  The desire to own property is firmly entrenched in UK society. Home ownership has been an aspiration for recent generations. Whereas at the end of the First World War 80% of households rented from private landlords, home ownership levels now constitute around 70% of all households.[1] Gaining a foothold on the property ladder has, however, become more and more difficult as property prices have risen dramatically in recent years. Many individuals have taken on huge debt burdens, often encouraged by the very permissive lending policies of some major financial institutions.

2.  The impact of the recent economic crisis on households has been very considerable. As was the case in the early 1990s, a variety of causes have conspired to increase mortgage arrears and consequently repossessions. Kay Boycott, Director of Communications, Policy and Campaigns at Shelter, told us that her organization estimated that some 6.5 million households were subject to "stress and depression" as a result of their housing costs.[2] People's identities are closely bound up with where they live, and the trauma of having that home repossessed can be very considerable. The downturn in the buy-to-let market and falling rental yields have also meant that the private rented sector has been subject to upheaval with many of those renting property also discovering that mortgage arrears and repossession could affect their lives.

3.  We undertook this short inquiry as a follow-up to our wider study of the banking crisis over the last 18 months. We wanted to see how the wider crisis was having an impact on people's lives. We have looked elsewhere at the tangled complexities of the global financial system, a world of credit default swaps, synthetic products, toxic assets and securitized debts. Such abstract terminology seems far removed from the realities of everyday life, but some of the evidence we have received shows how the credit crunch has actually unfolded in households across the UK. Citizens Advice offered a case study of a woman in Cheshire, reported to one of its bureaux:

A single woman … reported that because she could no longer maintain payments to her non-priority creditors and had fallen into arrears with mortgage and secured loan. The client told the CAB that she had been working 55+ hours per week in an attempt to maintain payments and relying on family contributions. She had a first mortgage of £81,000, and two secured loans, one for £39,000 and the other for £7,600 on a home worth £125,000. Her credit debts totalled £28,000 and had mostly taken out 2-3 years ago to support her unemployed ex-boyfriend. The client told the CAB that she had experienced severe problems with the secured lender to whom she owed £7,600. Although she told this lender that she was considering bankruptcy as a way of dealing with her debt problems, they continued to call her every day making threats of recovery action. The calls included calls to her workplace, and debt recovery agents for the lender passed messages for the client to her colleagues.[3]

4.  In another case study, a lone parent in Surrey with two children came back from holiday to the property she had been renting for 10 months to discover that the locks had been changed. A notice announced that a possession order had been made against the property. She was "let … in under supervision [from the lenders] for ten minutes to collect a few necessary possessions, including her son's GCSE work".[4]

5.  We announced our inquiry on 17 June with the following terms of reference:

The inquiry will focus on households affected by the recession and struggling with mortgage arrears and/or at risk of repossession, as well as problems in accessing finance for FTBs [First Time Buyers].  Evidence is sought on:

  • the current number of homeowners in mortgage arrears and forecasts for the trend in mortgage arrears over the medium-term
  • the number and characteristics of homeowners who have had their properties repossessed, the number in the process of having their homes repossessed,  as well as forecasts for the trend in repossession levels over the medium-term
  • the treatment by, and the approaches taken, by mortgage lenders towards homeowners in arrears and/or at risk of repossession, including issues relating to the treatment of homeowners by financial institutions specialising in mortgage lending to sub-prime borrowers
  • adherence to, and the effectiveness of, Financial Services Authority (FSA) rules and guidance for mortgage lenders on repossession policy and treatment of consumers in arrears as well as the FSA's regulatory approach in this area
  • adherence to, and the effectiveness of, codes of conduct, protocols and statements of good practice issued by industry bodies in this area
  • issues of concern around the operation of sale and lease-back schemes
  • the success of those Government schemes in existence before the financial crisis to support homeowners facing difficulties with mortgage payments and/or at risk of repossession, as well as the effectiveness of initiatives introduced since the financial crisis began; and
  • the impact of the credit crunch on access to mortgage finance and the terms on which such finance is offered for first time homebuyers.

6. On 30 June we took evidence from Citizens Advice, Which?, Shelter, the British Bankersí Association, the Building Societies Association, the Intermediary Lenders Association, the National Landlords Association and the Council of Mortgage Lenders. On 7 July we heard from the Financial Services Authority, Lord Myners, Financial Services Secretary HM Treasury and John Healey MP, Minister for Housing, Department of Communities and Local Government. We also received some 26 memoranda which have informed our work. We are extremely grateful to all those submitting both written and oral evidence.

1   Council for Mortgage Lenders, Housing Finance Issue 02 (2007), p 3 Back

2   Q 46 Back

3   Ev 9 Back

4   Ev 12 Back

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