Debts & Loans

There was mixed news behind the Council of Mortgage Lenders' (CML) statistics on repossessions last week. The number of borrowers losing their homes after failing to pay their mortgage rose by 50 per cent but the rate of repossessions appears to have slowed, according to data from the Ministry of Justice.

The CML estimates repossessions for the year will now fall below the 75,000 previously forecast. Sarah Routledge asks the politicians and the industry experts what this means for the real people behind the statistics.

What is the government doing?

The government has introduced several measures to help borrowers stay in their homes when they are struggling with arrears. They include the mortgage support scheme, which allows lenders to reduce a borrower's current monthly mortgage payments for up to two years, with the deferred payments added to the principal and paid at a later date. The government guarantees the lender against a proportion of any loss incurred on the deferred interest payments in case the borrower defaults. New pre-court action protocol has also been introduced, to ensure repossession is the last resort for lenders, while there is also more free legal support available for those fighting repossession through the courts.

These measures are having an impact on repossession figures, housing minister Margaret Beckett claims.

Ms Beckett says: "We are determined to do everything possible to help households facing difficulties with their mortgage payments. "There was no support in the 1990s and we have learnt the lessons. As far as possible repossession should always be a last resort. "While this is no time for complacency, the action we have taken together with the work of lenders to give borrowers more breathing space to help them find a solution, is having an impact on repossession numbers.

"On top of expanding free legal and debt advice, we've introduced a comprehensive package of measures that will help ensure that homeowners who experience a temporary income shock, lose employment, or are otherwise vulnerable, are able to remain in their homes. "And we intend to change the law to give more protection to tenants from landlord repossessions," she adds. Anyone who is having difficulties with their payments should always contact their lender in the first instance as often a solution can be found, the government advises.

Are the measures having an effect?

But Alice Douglas, spokesperson for the Liberal Democrats, says there is certainly room for improvement. "Some of the government's initiatives are positive but they are too narrow in scope," she claims. "What we say is that courts should have the power to enforce protection for homeowners against lenders, so they can reject repossessions. "So that's a fairly simple measure that would mean a change in the law."

From looking at the figures, repossessions are unfortunately still set to rise, Ms Douglas adds, unless action is taken through the courts to keep more people in their homes. The Conservatives are also critical of the government's attempts to stem the tide of repossessions. "Gordon Brown's recession is taking its toll and as repossessions rise, the government's headline-grabbing schemes are failing hard-working families," says Grant Shapps, shadow housing minister.

"3,000 families have asked for help under the £235 million mortgage rescue scheme and yet just one has received assistance while ministers have finally launched their homeowner support scheme - four months after announcing it - but just 50 per cent of lenders are actually supporting it. "It's time Gordon Brown concentrated on providing real support for those struggling as a result of his bust rather than trying to grab column inches," Mr Shapps adds.

While the government has been putting pressure on lenders to use repossession only as a last resort, falling interest rates have also made repayments affordable again to many, especially in households who have lost income through unemployment. Given the Liberal Democrats' and Conservatives' claim only one family have actually been helped by the mortgage rescue scheme, is any fall in the number of repossessions more to do with lower interest rates than government help?

Sam Younger, chief executive of housing charity Shelter, says a new survey from advice agencies, including Shelter, show certain measures have helped – but some families have benefited more than others. According to the survey, 51 per cent of advisers had seen an improvement in mainstream lenders' practices since the Pre Action Protocol, a set of rules ensuring lenders' take all reasonable steps before starting repossession action, came into force.

But only 20 per cent of advisers reported that sub-prime and second charge lenders' arrears collection practices have improved. Mr Younger says: "With sub-prime borrowers the most at risk of repossession in a recession, it is vital these lenders urgently change their practices to help keep people in their homes."

Echoing the concerns of the politicians, Mr Younger says the schemes put in place to help people must be enforced if they are to work.

"Unless all lenders urgently sign up to and consistently implement government or equivalent schemes to prevent repossession many people will fall through the gaps and repossessions will continue to rise. "We also need to see stronger enforcement by government across the entire mortgage sector," he warns.

But Royal Institute of Chartered Surveyors (RICS) chief economist Simon Rubinsohn argues the government policies are working.

"Even before the introduction of Home Owner Mortgage Support and the bedding down of the Mortgage Rescue Scheme, the figures show that both the number of claims issued and orders made fell sharply. "As these schemes begin to have a meaningful impact over the coming months, the likelihood is that the number of claims issued will continue to weaken," he says. RICS estimates that the figure could be as low as 50,000, which would be someway below the highs seen in the early 1990s.

What to do if you are in arrears

A toxic combination of a falling property market and rising unemployment has turned many a dream home into a financial trap, leaving its occupiers unable to afford to stay but unable to sell to leave. On top of the stress of being evicted, homeowners in negative equity can be left thousands of pounds in debt if their lender fails to make enough money from the sale to cover the debt.

So how can homeowners struggling with their mortgage payments avoid the heartache of repossession?

The Citizen's Advice Bureau has advice on its website for dealing with arrears, as does Shelter, while the government outlines the help homeowners are entitled to on Directgov. Joe Surtees, from the Consumer Credit Counselling Service, says the important thing to do is to talk to someone as soon as you think you will have difficulties in paying your mortgage – and not to panic unnecessarily.

"Your first move should be to contact your lender and a charity such as ourselves and the CAB. "We do have a specialist mortgage arrears centre who can counsel people who are having difficulties with their mortgage.

"Unfortunately, sometimes we have to advice giving up the property, but there are government schemes available. "The lender will probably help, and will look into if you are eligible for any mortgage schemes. It is always better to keep them informed as they will often be far more understanding than you realise."