Lender forbearance can only go so far, argues Pete Thomson, managing director of Residential Property Solutions Ltd.
Our love affair with home ownership continues unabated, according to research published recently by the CML.85% of British adults say they want to live in a home of their own in 10 years’ time, a figure which has increased slightly since 2007, when the credit crunch first started to bight. Aspiring to become ‘king of our own castle’ continues to motivate millions of people and is presumably the reason why Grant Shapps, the housing minister, said in a recent speech that he will ‘work every day to help people achieve their aspirations to own their home.’
Now I don’t want to rain on the new minister’s parade, but unfortunately, the CML’s latest forecast estimates that this year, 39,000 homeowners will have their beloved properties repossessed. That’s one home every 14 minutes. And to compound the problem, there is a shortage of social housing to accommodate the growing numbers of homeless people and precious little incentive for private landlords to cater for the needs of evicted homeowners.
The harsh reality is that having a property repossessed is not only a financial catastrophe, but also a disaster in so many other ways. It disrupts children’s schooling, creates employment problems, destroys relationships and gives rise to health problems. In short, it’s an outcome that everyone – homeowners, lenders, local authorities, the health service, HMRC and schools – would prefer to avoid.
So what can be done, because as we move from 2010 into 2011 we face a potential ticking time bomb: rising interest rates? I think we all accept that rate increases are not a question of ‘if’ but ‘when’. And when they do arrive, thousands of people will find that higher mortgage payments coupled with an inability to remortgage due to banks’ continued unwillingness to lend, may force them down the slippery slope of arrears towards eventual repossession. Lender forbearance can only go so far and it is, arguably, only delaying the inevitable.
An obvious solution to the problem of needing to re-house the repossessed, is to keep them in their existing properties. Doing so immediately removes all those potential employment, schooling, health and relationship problems and focusses minds on the single remaining issue: financial hardship. History shows us that, in most instances, people who hit the financial buffers do get their lives back on track eventually they simply need time and a helping hand to do so. Unfortunately, for those facing repossession, time is usually in short-supply, which means they end-up facing a bailiff.
How can financially distressed people be kept in their homes, without lenders being asked to become charitable organisations? We already have one very practical solution available, which is sale and rent back. Yes, sale and rent back has had a bad reputation in the past, but it’s now fully regulated by the FSA and the few companies which still operate under the FSA’s watchful eye (which is probably somewhere between one and two dozen), are both professional and committed to upholding the highest standards.
It seems strange that the government has gone to the expense and trouble to regulate the sale and rent back sector, but has not then encouraged its use as a weapon in the war against repossessions and homelessness. Sale and rent back regulation now makes it mandatory for all tenants to be given the security of a five-year assured shorthold tenancy agreement, which is usually plenty of time for most people to get their finances back in good order. And companies such as Residential Property Solutions Ltd give all tenants the legal right to buy back their homes at any time during the term of their tenancy. Losing a home doesn’t mean they can never be homeowners again.
Sometimes, the most practical solutions come from those organisations which are already working at the coal face and which understand the issues and how to address them. As we’ve seen from the Mortgage Rescue Scheme, government solutions aren’t always a runaway success and perhaps now is the time to give alternatives, such as sale and rent back, a chance to prove its worth.
