The Government is apparently working hard to close off a repossession loophole that has recently been exposed, which allows lenders to force people out of their homes without having to go to court. This practice came to light last year when a mortgage provider (GMAC) sold a property to another company called Horsham after the owner got into mortgage payment arrears. When the couple who lived in the property failed to leave, Horsham issued trespassing proceedings against them. The judge found in the company’s favour and the couple were forced to leave.
This case then left a legal loophole open for unscrupulous companies to exploit and the Government intends to publish a consultation later this year on tightening up the law to make sure that all repossessions are carried out through the courts and every effort is made to keep the homeowners in their homes. Commenting on the Government’s efforts, Courts Minister Bridget Prentice said: “We want to publish a consultation by the end of the year on tightening up the law so that no lender can sell the home a borrower lives in against their wishes without first going through the court process, enabling them to take advantage of the help offered through the courts.”
Up until 1970, lenders had the right to repossess a property at any time – even if the borrower was up to date with their payments. This changed with the Administration of Justice Act 1970, which prevented any repossession if the borrower could meet future mortgage payments and reduce their arrears over time. Nowadays, borrowers can benefit from the Mortgage Pre-Action Protocol; this sets out guidance on the steps that lenders have to take before going to court, stipulating that repossession should be the last resort. Clearly no one told Horsham about that one.
Ministry of Justice figures credit the Mortgage Pre-Action Protocol, introduced one year ago, with reducing the number of repossessions applied for by 37% in the period between July and September 2009, compared with the same period in 2008. The Council of Mortgage Lenders doesn’t seem to agree however, citing a 5% rise in repossessions over the same period. In addition to this protocol there are a number of other options available to homeowners in difficulties, most notably, the ‘support for mortgage interest’, which does exactly that, helping homeowners who are in receipt of a benefit, such as jobseekers allowance, pay the interest on their mortgage.
Figures certainly seem to show that the state-owned Northern Rock has reigned back on its once vigorous repossession policy. The bank’s third quarter results show that the number of repossessed homes held by the bank has halved to 2,000, but the number of customers in mortgage arrears has increased by 4%. However, the 50% reduction in repossessed properties could be misleading; in all probability, it can be attributed as much to the increased saleability of such properties in the current rising market, as much to the bank using repossession as a last resort. The European Commission last week gave the go-ahead for Northern Rock to be split into two businesses, paving the way for part of it to be reprivatised. However, it emerged that the bank's debts to the taxpayer will reach £27bn by the year-end and will not be repaid in full for at least ten years.