This House of Commons Library briefing paper examines the number of households in mortgage arrears and having their homes repossessed, considers lenders’ obligations towards homeowners who are struggling with their mortgage payments, and outlines possible sources of advice for homeowners. The paper also discusses historic schemes to support struggling mortgagors and their effectiveness, and considers the potential impact of future interest rate rises.Jump to full report >>
The number of households in mortgage arrears and having their homes repossessed increased sharply after the 2008 financial crisis. However, since then mortgage arrears and repossession activity have been declining steadily – the number of repossession claims issued through the courts is now the lowest recorded.
The table below summarises the key UK figures for 2016 compared to 2015.
Sources: Council of Mortgage Lenders, Industry Data Tables; Ministry of Justice, Mortgage and landlord possession statistical tables: January to March 2017, Table 1
Mortgage lenders are required to follow certain steps when a homeowner falls into arrears. Before they seek possession of the property lenders must demonstrate that they have done everything which they are required to do under the Financial Conduct Authority’s (FCA) Mortgage Conduct of Business rules, to make possession a matter of last resort. Mortgage lenders must also adhere to the Pre-Action Protocol which sets out clear standards expected of lenders bringing repossession cases to court.
The FCA is working with the industry to help it improve and strengthen arrears management practices.
Advisory bodies advise anyone with concerns about managing their mortgage to contact their lender as soon as possible to discuss the advice and support available.
Help with mortgage costs is available to claimants of certain means-tested benefits for people not in full-time work. The schemes are collectively known as Support for Mortgage Interest (SMI). For most claimants, payments are subject to a certain ‘waiting period’ and a cap. From April 2018 SMI will change from a benefit to an interest-bearing loan, secured against the mortgaged property.
Some mortgage lenders offer Assisted Voluntary Sale support to homeowners with mortgage arrears, to enable them to sell their home and avoid repossession.
Low income households facing possession proceedings may be entitled to free legal aid. The Legal Aid Agency funds Housing Possession Court Duty Schemes (HPCDS) throughout England which provide free emergency legal advice and representation on the day of a possession hearing, regardless of financial circumstances.
Additional, temporary, measures were introduced as a direct response to the 2008 financial crisis which were aimed at minimising the number of repossessions. These measures included:
Increased lender tolerance (forbearance), together with the various Government schemes to support householders, enabled many home owners to avoid repossession and stay in their homes.
The private sector also developed its own mortgage rescue response in the form of “sale and rent back” (SRB) schemes. These schemes involve private companies buying people’s houses at discounted prices and keeping the ex-owners in situ as tenants. Although these schemes provide individuals with a quick and easy source of cash, they were, until 2010, unregulated and could leave ex-owners facing substantial rent charges or, ultimately, eviction, as they become assured shorthold tenants with no long-term security of tenure.
In recent years households with mortgages have benefitted from historically low interest rates. The vast majority of borrowers are up to date with their mortgage payments.
However, some households may be particularly vulnerable to increases in mortgage repayments. For example, those who are currently in mortgage arrears or are over-indebted.
On the 2 November 2017 the Bank of England raised interest rates for the first time in a decade, raising its main rate by 0.25%-points to 0.5%. Given that interest rates remain historically low, a quarter-point increase is likely to have a modest impact on most borrowers.
Nevertheless, with indications that there may be further interest rate rises to come, households are advised to keep their mortgage payment plans under review. The Financial Conduct Authority has encouraged lenders to identify borrowers who could be susceptible to interest rate rises, and consider deploying proactive strategies to engage them early.
Commons Briefing papers SN04769
Authors: Wendy Wilson; Hannah Cromarty; Cassie Barton