Good News For Worried Homeowners
The government is desperate to avoid a steep rise in home repossessions. It will improve the benefits on offer to homeowners and has ordered lenders to show restraint...
Although the government had stepped in to rescue some of the UK's biggest banks, the outlook for the UK housing market continues to look pretty grim. House prices are falling steeply and mortgage lending is as weak as a kitten, with approvals down almost three-quarters (74%) on last year. In addition, unemployment is rising as tens of thousands of jobs are cut each week.
What's more, with little or good news on the horizon, it's likely that mortgage arrears are likely to rise -- even if the Bank of England cuts its base rate again this Thursday. Of course, this gives the government a giant headache, as the last thing it wants is to read more headlines about sharp increases in the number of homes being seized by banks.
Hence, the government is desperate to do all it can to keep owner-occupiers in their homes. Thus, it will be pleased by these three events:
1. City watchdog tells lenders to be fair
The Financial Services Authority (FSA) has written to the bosses of all mortgage lenders, giving them until 31 January to ensure that customers in arrears are treated fairly. It has ordered banks and building societies to review their policies on mortgage arrears and repossessions, with the aim of improving weaknesses in this area.
Under its `Treating Customers Fairly' principle, the FSA can take action against financial firms which fail to follow the spirit and letter of its regulations. The FSA is particularly concerned about the actions of firms which lend to low-income customers and those with poor credit ratings, the so-called `impaired credit' market.
As the FSA makes clear, `repossession should be a last resort', so struggling borrowers can look forward to improved treatment. Otherwise, the regulator will crack down by fining or reprimanding offending firms.
2. RBS doubles its grace period
In last week's Pre-Budget Report, the Chancellor announced that leading lenders had agreed not to repossess residential properties within three months of owners going into arrears.
On Sunday, Royal Bank of Scotland (the UK's seventh-largest mortgage lender, with a 5.7% market share in 2007) announced that it would not take legal action against borrowers until they are six months in arrears. Other lenders recently agreed to allow three months to go by before taking legal action against borrowers who have fallen behind with their monthly repayments. Thus, the owner of NatWest is giving its customers twice as much leeway.
Then again, since the spectacular failure last week of RBS's latest right issue, taxpayers now own 57.9% of the struggling bank. Hence, it comes as no surprise that the new boss of RBS wants to get on the good side of ministers and taxpayers by taking some of the strain off borrowers in difficulty. Think of it as a `quid pro quo' from RBS for taking £20 billion of taxpayers' cash!
Obviously, this is good news for RBS/NatWest borrowers who have recently lost their jobs and are worried about losing their homes, too. By holding fire for another three months, RBS has given these homeowners extra breathing space to find another job, get back into work and start tackling their mortgage arrears. This pledge will last until the end of 2009 at least.
Then again, as arrears mount up in the face of a sickly housing market, this could backfire and simply delay the inevitable for the worst-off borrowers. With house prices falling every month for more than a year, selling further down the line could mean getting a lower price. Thus, some borrowers would be better off selling up quickly, rather than taking their chances on a future recovery.
I've no doubt that other mortgage lenders will follow in RBS's footsteps. In particular, there will be government pressure on the nationalised and part-nationalised lenders: HBOS/Lloyds TSB (£17 billion bailout), Northern Rock and Bradford & Bingley (both fully nationalised). So, expect these banks to give their borrowers a six-month grace period very soon...
3. Improved benefits for out-of-work homeowners
The government has also announced improvements to Income Support for Mortgage Interest (ISMI), one benefit paid to out-of-work owner-occupiers. In September, the government announced that it would cut the waiting period for ISMI from 39 weeks to 13 weeks from April 2009. Last week, it brought forward this improvement to January. Hence, throughout 2009, this benefit will kick in six months earlier than it did this year.
At the same time, the maximum mortgage on which ISMI is calculated will be increased from £100,000 to £200,000. This upgrades ISMI to account for the large increase in mortgage borrowing and house prices since ISMI was last changed in the early Nineties. This is a positive step for people who are unemployed or off sick and worried about their mortgage interest.
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I don't like the tone of some of the comments above, referring to those who are on benefits and in financial difficulty not being worthy of help with their mortgage repayments. We are not all lazy scroungers. Some of us are genuinely ill people who HAVE to rely on meagre state benefits to survive. We have a flat screen HD TV but my husband bought it before his multiple sclerosis made it impossible for him to continue working as a Kitchen Designer (he continued working for over 10 years after diagnosis before he had to finally surrender to his illness)and we have a games console which we got free with a phone contract. So those moaning about how you work and pay taxes for us on benefits are somehow perceiving us as living the high life - get over yourselves and get informed and stop buying into this idea that everyone in receipt of state benefits are fraudsters and cheats. Would you rather be healthy and work or have an incurable illness and struggle on benefits? There are only a few bad apples cheating the system and of course you are going to hear about them they make good news headlines. A lot of the problem is also civil service maladministration but you never hear about that when it comes to meteing out benefits it must all be about fraudsters. Sorry to rant but I have M.E, Depression and Fibromyalgia and the fight to keep my small two up two down home from repossession is causing me sleepless nights and a lot of stress and tears on top of all the usual physical and mental pain I have every day. I have to suck up my pride and take whatever assistance I can and be grateful for it. So I say thank goodness for whatever the government are trying to do re this housing and credit crisis. You can all keep your fingers crossed for two disabled people who are waiting with their hearts in their mouths over this holiday period that they get awarded the mortgage payment assistance from the dole and that they can meet whatever the shortfall will be out of their measley DLA and income support and keep a roof over their heads. Merry Christmas!
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What the government is doing is empowering the homeowner to take more control over their homes - with the help of the FSA; their should be no reason why any homeowner should loose their home - REMEMBER - when you took out the mortgage, you may have paid a deposit, you may have been made to pay a HIL (insurance against risk taken by the lender) and the FSA principles are excellent! and remember also that the mortgage is a type of contract governed by the property Act 1925 (can't remember exact date, so apologies if this is incorrect) and for good measure - add in the fact that the contract between you and the lender is normally for a period of 25 years.[br/][br/]So in essence, all of the above puts homeowners in a very strong position to keep the roofs over their head.[br/][br/]God Bless Gordan Brown.... If you have not felt the empowerment offered you, then perhaps you are not truly recognising the power you always had and now publicly hold.[br/][br/]Yes your lender can repossess your home, we know that - but the FSA says they have to treat you fairly - is it fair to repossess someone who has paid say a 10-15% deposit against a property of say £200,000 and who paid a HIL either upfront or is doing so alongside each mortgage payment, who has fallen on hard times and has say another 20 years of the contract to run? Afterall, surely a small blip of 2 years within a 20 year period can be seen as a risk the lender must bear - afterall thhey have another 18 years in which to re-coup the loss![br/][br/]Capitalism is not the case for many homeowners, they just want a house that they can call home to pass onto the kids - nothing wrong with that - this is the way of life and should be allowed to continue and again God Bless Gordon Brown for sublimely reminding lenders of what mortgage lending is all about - the lender takes the risk just like the homeowner - for tooooo long the lenders have been driving borrowers into thinking they have no rights, no leg to stand on and have stacked all in thier own favour - but next time Gordon announces what is YOUR RIGHT - applaud him - he is really helping homeowners and reminding lenders that homeowners have right too.[br/][br/]Check your paperwork and write to your lender reminding them that the relationship is between the two of you and that you paid a deposit and a HIL (if applicable) and remind them that you did not sign the mortgage contract to be treated unfairly!!
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OK, so now we own the banks, we can solve the cheap rental property situation and the repossession problem all at once. All we have to do is reposses properties belonging to defaulting buy-to-let owners and keep the tenants in occupancy on a reasonable rent. This would take properties off the market, reducing supply and hence maintaining prices. These properties could be managed by the local authorities. I'd like to coin the term "council houses" for them.
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23 December 2008