The Citizens Advice service helps people resolve their legal, money and other problems by providing free, independent and confidential advice, and by influencing policymakers.
Every Citizens Advice Bureau is a registered charity reliant on trained volunteers and funds to provide these vital services for local communities.
Sub-prime lending undermining home ownership, says Citizens Advice report |
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A new report today from Citizens Advice reveals how the dream of home ownership has turned sour for many people on low incomes who have taken out mortgages or secured loans with sub-prime lenders only to end up deep in debt and facing the prospect of homelessness. Set up to fail shows how dubious advice from brokers, irresponsible lending decisions and aggressive arrears management by sub-prime lenders are driving the current increase in mortgage arrears, court action and repossessions. It also shows how the regulation and safety nets currently in place are failing to protect vulnerable borrowers. Citizens Advice concludes that government policy encouraging more people on lower incomes to buy their own homes, while a laudable aim, can only work if the problems its report highlights are addressed. The charity makes a series of recommendations which it believes would make home ownership more sustainable for those for whom at present it remains a high risk undertaking. Last year (2006/07) Citizens Advice Bureaux dealt with over 57,000 problems about mortgage and secured loan arrears, an 11% increase on the previous year, and an NOP GFK survey for Citizens Advice suggested as many as 770,000 people had missed at least one mortgage or secured loan payment in the previous 12 months. At the same time, court action for repossession has risen steeply and is now at a similar level to that seen during the repossessions crisis of the 1990s. The new report is based on 1,200 case studies from 360 Citizens Advice Bureaux in England, Wales and Northern Ireland, a survey of CAB clients with mortgage or secured loan arrears, and interviews with CAB clients and advisers. A CAB analysis of mortgage possession cases listed in 23 county courts in January 2007 found that sub-prime lenders were responsible for a level of possession actions substantially above their market share - in some cases the equivalent of ten times more than mainstream lenders. Citizens Advice Chief Executive David Harker said:
Many people who borrowed from sub-prime lenders start to struggle early on in the term of the mortgage, and CAB evidence shows that these lenders are often unwilling to negotiate affordable repayment arrangements with borrowers in difficulties, taking court action for relatively small amounts of arrears, significantly increasing the stress, risks and costs people face. The hardline approach by lenders threatening court action, and escalating the debt by routinely piling on default charges, drives many to try and solve the problem by re-mortgaging or borrowing more in the form of secured loans, without realising they are putting themselves at even greater risk of losing their home by doing this. Key report findings:
Citizens Advice is calling for tougher enforcement of existing regulation, and for the same rules to apply to all mortgages and other secured lending in future. It says these should combine the best elements of the existing regimes and should be actively monitored and enforced, taking firm action against bad businesses. It adds that improving the regulation of brokers should be a priority. The charity also wants to see a guaranteed ‘pre-action protocol’ put in place to ensure that mortgage and secured lenders take court action for possession only as a last resort, and a housing benefit for homeowners similar to the help with rent available to tenants on low incomes. Citizens Advice Chief Executive David Harker said:
Case studiesA CAB in London saw a 71 year old man who had been living in a one bedroom council flat since 1999 and said he was managing well on state retirement pension, a small Merchant Navy pension, and benefits. In 2004 he was approached on his doorstep by an agent for a mortgage lender, and persuaded to borrow £75,000 to exercise his right to buy. He had apparently received no independent advice, and there was no attempt to check that he could afford to pay the mortgage. His total monthly income was £520 and the mortgage payments were £455 per month. It was a 20 year mortgage and he was 68 when he took it out. He was also persuaded to borrow £15000 over and above the discounted cost of the property. When this ran out he got into arrears and was subsequently evicted. A CAB in Yorkshire saw a 47 year old man who had severe mental health problems. He had previously been a local authority tenant but had exercised his right to buy after being visited by a doorstep canvasser. At the time he was in receipt of incapacity benefit and disability living allowance but was advised by the mortgage broker to apply as 'self employed'. He agreed to this at the time but he was not in a fit state of mind. Some months after completion of the sale the mortgage interest rate increased. The man said he thought that a discounted period must have ended but this was not made clear to him at the outset. He was unable to keep up with the repayment and the lender took court action for possession. He faced the prospect of homelessness and a residual debt. A CAB in Surrey reported that a woman fell into mortgage arrears whilst doing nursing degree course. She advised her lender of her situation and asked whether the arrears could be capitalised, but this was refused, even thought her situation was likely to change within a few months when her course ended and she could start full time work. Instead the lender started court action to repossess the property. They made the situation worse by charges they levied. Each month an arrears fee was charged which ranged from £35 to £50, plus a returned direct debit fee of £35. In at least one month the arrears fee was added twice to the account. A further £434.75 for solicitor’s costs and a claim fee of £125 was added to the debt. At the time of seeking advice, the arrears stood at £3,811.36, and over £1,000 of this was charges. The client’s ability to repay the arrears was greatly decreased by addition of excessive fees, increasing the possibility of repossession. A CAB in Surrey reported that a self-employed man took out a second mortgage for £18,000 repayable over 60 months at £540 pm. At the time the client also took out PPI to cover him in case he could not work, a single premium costing £4,000 which was added to the loan. He tried to claim against his PPI when he was unable to work for a time and got behind on his mortgage payments, but was told that his PPI did not cover him because he was self-employed. The loan company sought to repossess his property. Notes to editors:
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