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Home ownership dream is now a nightmare says report
A new report 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.
But the report ‘Set up to fail’, has been criticised by the Council of Mortgage Lenders (CML) as being too simplistic.
‘Set up to fail’ claims 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 says 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 has made 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 per cent 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. Court action for repossession has risen steeply and is now at a similar level to that seen during the repossessions crisis of the 1990s.
Citizens Advice Chief Executive David Harker said: “The cavalier behaviour of some brokers and sub-prime lenders is seriously undermining home ownership and hitting the most vulnerable borrowers hardest.
“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.”
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.
However, the ‘Set up to fail’ report has been criticised as being too simplistic in its criticisms of the lending industry, according to the Council of Mortgage Lenders (CML).
The organisation claims the vast majority of mortgage customers receive a high level of help and care from lenders of all kinds if they fall into difficulties, in accordance with the rules set out by the Financial Services Authority.
The CML also believes the CAB evidence is based on a very skewed sample of borrowers.
However, the CML agrees that there is a case for FSA regulation and that the government should improve the safety net available to borrowers, especially those who suffer reduction of income, to reduce the imbalance in the treatment of owners and tenants. And the CML has already publicly joined with Citizens Advice and Shelter in calling for the regulation of sale-and-leaseback schemes.
CML director general Michael Coogan said: “Citizens Advice has taken a sensationalist tone in this report, which risks throwing the baby out with the bathwater. In fact, sub-prime mortgages give people a way to rehabilitate their finances and are important in a financially inclusive mortgage market.
“This is a pity, as we agree with many of the underlying policy recommendations, particularly about the need for government to improve the woefully inadequate public safety net for home-owners who fall into difficulties.”