Repossessions F.A.Q.s

1. What are we calling for?
Government action to place a moratorium on re-possessions by banks and other lenders, and help homeowners and their families stay in their homes.

This will help not only individuals and their families, but also estates, suburbs and communities affected by the way re-possessions and empty houses lower standards of maintenance, encourage vandalism, and depress all house prices in the area.

Halting re-possessions will mean fewer houses on the market and will help place a floor under house prices. This will assist everyone affected by falling house prices - from estate agents to homeowners to workers in the construction industry to sandwich makers that provide lunch for construction workers.

Falling house prices draw more of us into negative equity and into mortgage default. As more people default, banks tighten up lending. This dries up funding for thriving businesses and leads them to lay off their staff. Rising unemployment means more people can't repay their debts, and leads to more mortgage defaults....and an ever-downward economic spiral.

2. Why is it needed?
Because re-possession and homelessness leads to stress, family break-up, divorce which in turn can lead to a rise in problems such as alcoholism, drug-taking and domestic abuse. Because homeowners threatened with re-possession give up caring for their homes and their environments and this affects their neighbours and wider community.

Because this affects us all - the suffering of individual homeowners and families has wider social and economic impacts, such as increased health care and dependency costs. It is also needed because these homeowners were lent money recklessly - by bankers and other lenders that were out of control - because government and the Bank of England failed to regulate these lenders properly.

Above all, it is needed because placing a floor under falling house prices will stabilise the economy as a whole - which has become very dependent for its health on the housing and construction sector. As house prices fall, homeowners, whose wealth is often tied up in the value of their homes, cut back on spending which in turn negatively affects businesses and employment.

3. What about people who can afford to pay but choose not to?
Homeowners are highly unlikely to put themselves in the position of losing part or all of the equity in their homes through a scheme like this if they can avoid it. Most people see a large part of their wealth being held in the value of their home. By losing a stake in the equity of the house they would be reducing their future potential income which would come from the sale of the property.

4. And won't this let owners of buy-to-let properties off the hook?
The 38 Degrees resolution makes it clear that the moratorium will only apply for a homeowner's primary residence. Buy-to-let mortgage holders will not receive protection under our scheme.

5.Won't this just support fecklessness?
Right now the government is bailing out the banks - and supporting their fecklessness.

Our proposal will discipline both homeowners and lenders. Homeowners will lose full ownership of their homes; and lenders will make a loss on their loans.

These actions will make both borrowers and lenders far more careful in the future.

It is important to remember that repossessions are rising because of the financial crisis, not because of a sudden increase in fecklessness. The crisis is not the making of people now facing repossession. It is the result of irresponsible lenders and the failings of regulation. People take mortgages because they want a roof over their heads and are encouraged to borrow large sums to do so.

6. What has the government done to protect homeowners so far?
From September 2008, the government introduced a number of measures intended to help homeowners stay in their homes.

• Mortgage Rescue Scheme - This scheme was announced by the government in September 2008 in response to the unregulated market for sale-and-rent-back. The government's £285mn scheme is aimed at allowing up to 6,000 homeowners and their families to avoid repossession. The scheme is similar to our proposal in its approach, and allows for Housing Associations and Local Authorities to buy part or all of a property and rent it back to the homeowner.
• Homeowner Mortgage Support Scheme - Announced in December 2008, this scheme enables households that experience a significant and temporary loss of income as a result of the economic downturn to defer a proportion of the interest payments on their mortgage for up to two years. The Government will guarantee the deferred interests payments in return for banks' participation in the scheme. The deferred payment will be rolled up and added to the principle, with the borrower paying this off when their financial circumstances improve, maintaining an affordable monthly payment by extending the term of the mortgage.
• Mortgage Pre-Action Protocol - This was also announced at the end of last year, and aims to ensure that repossession claims by lenders are a last resort. The protocol gives clear guidance on what the courts expect lenders and borrowers to have done prior to a claim being issued.
• Reform of Income Support for Mortgage Interest - The waiting period before SMI is paid has been reduced from 39 weeks to 13 weeks for new working age claims.

7. Why isn't this enough?
These measures amount to good intentions but they do not go nearly far or fast enough. The rising number of repossessions in the first 3 months of 2009 - 20% up on the previous 3 months, and 50% up on a year earlier - is testament to the fact that more urgent action is required.

The Mortgage Rescue Scheme in particular is only designed to help 6,000 families in England, but estimates are that 75,000 homes in Britain could be repossessed this year alone. Suggestions that the repossessions crisis will not be as bad as that seem like wishful thinking when we consider that unemployment is expected to climb by a further 1 million in the next year. And reports at the beginning of May revealed that by 1st May 2009, only one household in England had benefited from the Mortgage Rescue Scheme (The Guardian, Friday 1st May 2009, One £285m mortgage rescue scheme. One family helped).

On 15th May 2009, The Ministry of Justice issued data and information which showed that the number of repossession claims being made had fallen in the first 3 months of 2009. This is good news, because it suggests that homeowners may be given more time to try and save their homes, but if employment prospects are bad or worsening, the tide of repossessions will continue as banks seek to stem losses.

8. Is further government action legally possible?
With political will, yes.

Governments, and therefore we as taxpayers, currently have large stakes in the banks that have lent recklessly to homeowners. So they have wide powers to intervene in the practices of banks.

Plus of course government has the power to legislate to enforce the ban on re-possessions. Government can act very quickly, putting in place emergency legislation as it did with the Witness Anonymity Act of 2008, and the Banking (Special Provisions) Act of 2008.

9.Won't this mean taxpayers end up picking up the bill for people who can't pay - especially in the government-owned banks?
The real cost of the ban on repossessions in the long-term will be borne by lenders, and home-owners. While the taxpayer will subsidise the initial bail-out of homeowners, the government will collect payments in the form of rent from the owner/occupiers of the homes, and so over time the subsidy will be repaid. It is also possible that, as part-owner of a property, the taxpayer will benefit from resale of the property when market conditions improve.

Crucially, all taxpayers will benefit from the stabilisation of the banking and financial sector - and from recovery for the whole economy.

Of course, taxpayers are already carrying the huge financial burden of bailing out insolvent banks. But economic recovery also depends on stabilising the housing market. Without economic stability implemented through concerted action, the cost to society and the taxpayer will be much higher in the long run.

10. Isn't this just delaying the inevitable?
No, it is not inevitable that large numbers of people should be made insecure and homeless, and banks and the economy damaged by repossessions. We can act to prevent this crisis accelerating and worsening the current financial crisis.

We're calling for moratorium not just as a temporary delay in repossessions, but to create breathing space whilst a proper scheme is developed and whilst the employment and income prospects of homeowners improves through economic recovery. There are ways to address the circumstances in which people cannot maintain mortgage payments other than repossession - e.g. our detailed proposal.

11. Who else is calling for this?
Others who are calling for action, or schemes, to halt repossessions include the Big Issue and think tanks such as Fathom Financial Consulting.

38 Degrees is being supported by organisations such as Church Action on Poverty.

12.What are other governments doing internationally?
With the exception of Spain , other European countries are not as badly affected by a crisis of repossessions, because mortgage lending in European countries was, and is, more strictly regulated than in the UK .

Spain currently holds the European record for unemployment at more than 15%. The Times recently quoted a Spanish banker on the fate facing many Britons in Spain : "Some feel badly treated. The banks here can get very heavy-handed as soon as people fall into arrears on their mortgages. Men in suits turn up at the door making demands, and people don't know what to do."

"Many Brits are running scared. Many are angry," he says, describing the damage some have wrought on their properties before leaving. One man backed a cement lorry onto the rear patio of his apartment and had the entire ground floor filled with cement.

"The mood here has turned ugly," he adds, estimating that around 10% of all properties bought by the 40,000-50,000 British who live in the Valencia region of southeast Spain alone are going through various stages of repossession. Multiply this across Spain , where more than a million British passport holders now live either full time or for part of the year, and a sorry exodus back to the UK is unfolding." ("Sun, Sea and Debt", The Times, 26 April, 2009.)

In the US, under President Obama's "Making Home Affordable" program up to 9 million American families that have mortgages with the government-backed Fannie Mae or Freddie Mac mortgage companies, may be eligible to refinance or modify their loans to a payment that is affordable now and into the future. The objective of the Home Affordable Refinance is to help borrowers, current with their payments, get into more affordable loans. The help will not apply to 'delinquent' borrowers, ie those in arrears with their mortgage payments. Refinancing will not reduce the principal amount homeowners owe to the first mortgage holder or any other debt they owe. However, refinancing should save homeowners money by reducing the amount of interest that they pay over the life of the loan. The programme expires in June, 2010.

13.Why Brown as primary target, as opposed to Beckett/Darling or the Banks?
As Prime Minister, the public rightly expect Brown to take the lead in response to recession assisted by his ministers. He has staked his credibility on providing stability and protecting ordinary people from the worst of this recession. Naturally as PM he would delegate responsibility for implementing the 38 degrees' resolution to the most appropriate public authority. It could be a government department, devolved authorities, local authorities, or a bank with a government stakeholding.

14.Why should people renting or paying their mortgage worry about repossessions?
The damage repossession does impacts not just on an individual homeowner or family but on their immediate communities and society as a whole.

Damage to communities includes:

• Physical decline of repossessed properties which are not maintained and may lie vacant.
• Depression of house prices in the area driven by the discounted sale value of repossessed homes.
• Higher levels of crime in affected areas. Evidence from US studies find that repossessions contribute to an increase in crime.

Damage to society as a whole comes from the strong interdependence between the housing market, the credit market, and employment. This means that instability in the housing market is not contained but spreads across the economy.

• When house prices fall, homeowners feel less well off and tend to reduce spending. This reduces income for businesses and leads to job losses. As more people lose their jobs so there are more mortgage defaults, a rise in number of repossessions and a further fall in house prices.
• Lenders react to falling house prices by reducing lending. This can make it hard for businesses to access the credit they need to keep running day to day. Without that credit more businesses will fail leaving more people without jobs.

15.Do we disagree with other housing charities?
No. They are focussed on services for people facing homelessness and this is important. We are calling for government to act to stop repossessions which would reduce the number facing homelessness.

16.Do we disagree with the Council of Mortgage Lenders' projections on Mortgage Arrears?
We think that the CML is understating the potential scale of the problem. Unemployment has been rising dramatically (up by nearly a quarter of a million in the first 3 months of 2009) but so far CML has not altered its projection for 75,000 repossessions during 2009. In fact, there is talk of CML revising its projection downwards not upwards in its summer release. But as unemployment numbers worsen, mortgage arrears and defaults, and hence repossessions, will rise by more than previously expected.

17.What's the role of the publicly owned banks?
Northern Rock was taken into public ownership in February, 2008. A National Audit Office report of March, 2009 noted that Northern Rock continued to write its notorious "Together" mortgages of up to 125 per cent of a property's value throughout the period that it was receiving emergency taxpayer support, albeit at a reduced volume.

In other words with implicit government backing, Northern Rock continued to act as an irresponsible lender, and to saddle homebuyers with mortgages well above the value of a property, when property prices had already begun to fall. In October, 2008 two charities (Shelter and Credit Action) reported that Northern Rock has been "aggressively repossessing the homes of those who cannot afford to pay their mortgages". It was asserted that the taxpayer-backed bank is 2.5 times more likely to repossess a home as other banks.

In the first six months of the year 3,710 properties were repossessed by Northern Rock -the equivilant of 0.56 per of the bank's of stock. Industry repossession averages stand at 0.16 per cent, according to Shelter. The Director of the charity Credit Action, Chris Tapp said "They are also not giving people a lot of time, they seem to be moving for repossession quite quickly as a resort." Charities say the bank is so keen to repay its debt to the taxpayer it is forcing people out of their homes.