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The number of families having their homes repossessed by lenders has risen to 11,300 for the third quarter of this year; this is up from 10,000 in the previous three months. Those homeowners struggling to make mortgage payments also rose.

At the end of September, 1.44 percent of mortgages were at least three months in arrears compared with 1.33 percent at the end of June.

The CML said the payment profile of buy to let mortgages worsened more rapidly in the third quarter than the market as a whole.

Source: Council of Mortgage Lenders

Debtwizard comment

Although the data is collected correctly by the Council of Mortgage Lenders (CML) it does not offer a true reflection of the current market conditions. There has been no taking into account of the amount of homes being sold by families to private landlords, often referred to as 'sale and rent back scheme'.

Many of these sales are conducted to prevent the home being repossessed and the seller then usually remains in the property, albeit being owned by someone else, and pays rent, so in effect becomes a tenant.

It is estimated by the Financial Services Authority (FSA) that some 50,000 of these homes have been sold under this scheme over the past 'few' years and Mike feels that about 20,000 of these have been sold during 2007 alone. This means that the real figures should have been 46,200 homes repossessed last year, which believe it or not is what the CML is predicting for 2008!

Mike feels that because 'sale and rent back' was not an option back in 1991 when 76,000 homes were repossessed he believes that the true figure for this year without 'sale and rent back' would be around 65,000 - 70,000 homes, this would then make it compatible with those figures back in 1991.

Another point that can not be challenged is that it takes between 6 and 12 months to have a home repossessed, therefore the figures released is based upon old data when the economy was stronger.

Mike argues that with the Government predicting unemployment to reach 3 million then there is now the potential over the next few years for repossessions to be at their highest since records began and it is only spin, together with 'sale and rent back', that is masking and distorting the true state of the housing market.

Mike has written an article 'out of the blue' and explains about how long lenders have to pursue a borrower for a mortgage shortfall following the forced sale after the repossession. Some will be astounded by the length of time they can chase the debt.

To view the article click here. here.

Read more: House repossession figures Nov 2008

 

The UK Government has withdrawn the new legislation due in next year known as SIVA, Simple IVA proposal, and yet again failed to support the struggling consumer, 18th November 2008.

The Facts

Insolvency is either an individual going bankrupt or an individual who has set up an Individual Voluntary Arrangement, (IVA) to repay their debts. Having an IVA means paying back some of the monies owed, but not normally all of it. The monies are repaid at a realistic and reasonably affordable rate that reflects the income of the individual. This is often the best solution for the individual as it allows them to get on top of their debts and avoid incurring further liabilities.

Currently people in debt need 75% in value of the creditors owed to agree to grant the IVA. Through the new proposed legislation the government was to decrease the percentage to a majority or 51% of the value of the creditors. The simple IVA legislation would have also removed the creditor’s right to adjust the conditions of the proposed IVA. Last year one agent representing banks and credit cards made 108 adjustments to the IVA proposal of a person facing insolvency.

It was announced yesterday, 17th November 2008, that the proposed Simple IVA legislation has been withdrawn, signifying yet another failure by the government to support the struggling consumer.

The insolvency figures Mike refers to can be found: here.

For more information on general IVAs then click here

For more information on Protocol IVAs then click here

Source: http://www.insolvency.gov.uk

Debtwizard comment

I find it unbelievable that in this time when the economy is on its knees, the consumer is gasping for air and with a forecast of 3 million unemployed, the government, that professes to help the batted consumer, will turn its back on legislation to get borrowers back on a level footing with creditors.

The numbers of people being granted IVAs are down this year due to the pessimistic stance taken by creditors. Bankruptcy over the same period has risen by almost 12% and it is about time that the government did something to remedy this.

In the past 18 months the banks have tried to stop their customers setting up Individual Voluntary Arrangements. It is estimated that as many as 15,000 to 20,000 in 2008 alone have been prevented from proposing an IVA due to the demands being asked by the banks.

The banks are able to do this by setting up what is known as 'hurdle' rates for those applying for IVA’s. This is where they demand a high a percentage repayment back on the debts and thousands of individuals are simply unable to meet their demands.The reason the banks have done this is simple. Having a high number of IVA’s on their balance sheet is seriously bad for business and can have a negative knock on their share price. A ‘long term debt repayment programme’ does not show up on their balance sheet” It is estimated that there are some 750,000 individuals in these types of plans which offers no legal protection or debt relief to the borrower.

With the Government now controlling most of the lenders in the UK, it’s about time banks started to help the financial overstretched consumer and remove these hurdle rates. The actions by some banks and credit card companies also go against the BBA guidelines, (British Bankers Association), whereby a borrower with financial difficulty should be treated in a positive and sympathetic manner.

I argue that the recently formed protocol IVA, launched on the 1st February this year, which was designed to improve the older version of IVA is not working. Many insolvency firms tell me that creditors are not abiding to the protocol which is why they desperately need the new SIVA to help debtors.

It is evident that had this new legislation been introduced then those numbers successfully proposing IVAs would have dramatically increased. This now raises the question, is it right that desperate individuals should be denied this new and much needed piece of legislation simply to prop up a failing share price?

Read more: Government drops massive bombshell on financially overstretched borrowers

 

A new law making it quicker for banks, credit card companies and other lenders to take action against struggling debtors could lead to thousands more people losing their homes.

The rules will make it easier for lenders to use charging orders to convert unsecured borrowing, such as car loans or credit card debts, into loans 'secured' against the home of someone who owes them money. Once a charging order has been used to convert an unsecured loan into a secured loan, the lender can then force the homeowner to sell their home to pay back the debt.

At the moment, creditors can apply for a charging order only where a debtor has incurred a county court judgment and has fallen behind with the repayment instalments agreed when the judgment was made. But under the new rules, lenders will be able to apply for a charging order simply because a county court judgment has been issued, irrespective of whether or not a debtor is sticking to an agreed repayment schedule. If the debtor then falls into arrears with repayments, the creditor can immediately use the charging order to ask the court to force a sale of the debtor's home.

The rule change is contained in the Tribunals, Courts and Enforcement Act 2007, which has passed into law but has yet to be brought into effect. The Ministry of Justice says a timetable for the introduction of secondary legislation giving the act effect will be announced 'in due course'. The Lord Chancellor will set a minimum threshold of debt - expected to be £1,000 - below which a charging order or order for sale may not be issued. This should protect homeowners struggling with small amounts of debt from losing their properties.

There were more than a million county court judgments in 2006 and debt advice charities are worried that the change in the law could result in a flood of applications for charging orders from lenders keen to recoup cash as a result of the credit crunch. This in turn could lead to a sharp rise in the number of debtors forced to sell their homes.

Source: http://www.guardian.co.uk/money/2008/sep/14/debt.creditcards

Debtwizard comment

I have been saying for years that there is no such thing as 'an unsecured debt' because a charging order can quickly change its status from unsecured to secured.

A charging order gives the lender an incentive because they can apply interest at the rate of 8% on the debt. At the moment, once a County Court Judgement (CCJ) has been issued, all interest is normally suspended during the repayment period, so you can see the attraction for lenders to pursue the charging order course of action.

My concern is that under the Tribunals, Courts and Enforcement Act 2007 Act, which comes into force next year, lenders will start to enforce the order by applying to the court to repossess the home on which the order is secured, even though the debtor is paying something back each month to the lender.

As house prices continue to drop, there is also a risk that an increase in charging orders will push many home owners further into negative equity. Another growing practice is for debt recovery agencies to purchase the debt from the original lender and then apply for a charging order.

Any house repossessions will further depress an already ailing housing market and I feel that this new legislation needs to be reviewed as potentially there could be disastrous consequences for many consumers.

Read more: Charging orders - a new threat to home owners

 

Insolvency figures for UK were released on the 7th November 2008.

Insolvency involves an individual either going, or having been made bankrupt, or someone who has successfully proposed an Individual Voluntary Arrangement, often referred to as an IVA.

The government issues insolvency figures every quarter; those for the final quarter of 2008 will be released on the first Friday in February 2009.

Mike feels that the approach being taken by creditors in dealing with IVA proposals could result in these figures being misleading and explains why here.

The figures Mike refers to can be found: here.

Mike's comment

In the past 18 months, Mike feels that some banks have been attempting to reduce the numbers of individuals successfully proposing, IVAs.

He says he has evidence of proposals for IVAs not even being put forward by insolvency firms because banks and credit card providers have increased the 'hurdle rates' making a proposal impossible for some overstretched borrowers.

An example is when the borrower proposes a 25 pence in the pound return but the hurdle rate put forward by lender is a minimum of 40 pence in the pound before acceptance. Because the insolvency firm is aware of the voting pattern of certain creditors they will simply not put forward the proposal knowing that is likely to be rejected and therefore receive no fee for doing the work.

Many High Street lenders and credit card providers often use the same agent to represent them at creditors' meetings, 'this agent' is likely to be influential in the voting, as collectively, they will often represent the majority of the debt owed.

If the requisite majority to approve the debtor's proposal is achieved, (75% in value of creditors who participate in the voting), then the arrangement is legally binding on both the debtor and the creditors.

The main agency representing most of the lenders will often have in excess of 50% of the vote so you can see how influential they are and how they can control the outcome of the meeting.

Mike feels that creditors will often reject an IVA in the hope that the borrower will then enter into a long term debt repayment programme where the debt is paid back in full and interest and charges can still be applied to the account. The lender can then commence legal action to secure the debt on the home, if owned by the debtor. More importantly the lender does not have to show it as an IVA insolvency on their balance sheet, which in turn can mask the true status of the debts that the bank or credit card provider has.

With the Government now controlling most of the lenders in the UK, Mike says it is about time they started to help the financially overstretched consumer and remove these hurdle rates with immediate effect and start supporting more IVAs. After all, the legislation for IVAs was introduced by the Government in 1986 as a legal way of resolving unsecured debts. Another important point is that the action by some lenders also goes against the British Bankers' Association (BBA), guidelines which state that a borrower with financial difficulty should be treated in a positive and sympathetic manner.

With an estimated 750,000 debtors free falling into ill advised and sometimes unworkable debt management plans by the end of 2008, it is evident that some will never clear their debt in their lifetime. Many feel totally frustrated and angered at having no support from the banks and Mike says that often the only solution will be bankruptcy, all because of the lack of support from creditors. This in turn will impact on future insolvency figures and although difficult to predict, with this year's third quarter figures due to be announced on November 7th, Mike feels we could have as many as 15,000 to 25,000 individuals who have been denied an IVA for this year alone. You only have to look at the insolvency figures so far this year, compared to the same period last year to see a stark contrast. And all this when consumer confidence and the economy is in a far worst state!

One must ask, is this a level playing field as creditors attempt to cover up their irresponsible lending and protect their share price? Is it right that the lenders can dictate to the vulnerable and desperate what their options are on getting out of debt?

The figures Mike refers to can be found: here.

Read more: Insolvency figures released for July, August & September 2008

 

Mike asked the FSA what would happen to the bank charges claim that is currently subject to appeal with the High Court in the event that should the banks' lose and a particular bank has been taken over such as Nationwide taking over the Cheshire and Derbyshire.

They informed him that this question had not been asked as yet then after consulting someone else, they then came back and said;

"In the unlikely event that the bank does not take on the other bank's liabilities then the Financial Services Compensation Scheme (FSCS) for savings will look at any potential bank charges claim. If it transpires that the bank (taken over) cannot pay by default, i.e. has no assets or funds to make the payment then the FSCS would consider paying the claim. This will only apply should the banks lose the 'test case' appeal and are required to pay the claim, verdict due at the end of the year."

We have created a page especially for Bank Charges Updates - keep checking back to keep in the know.

Read more: Bank Charges Claim Update

 

The sale and rent back sector needs statutory regulation with better protection for consumers, according to an OFT market study published today.

The OFT report says that:

  • some consumers enter into sale and rent back transactions when this is not the best option for them
  • some sale and rent back firms may mislead customers as to the value of their property or the security they have as tenants. This includes telling people they will be able to stay in their home for years, when in reality the tenancy may only be guaranteed for six to 12 months
  • some firms impose substantial rent increases or even evict tenants after a short tenancy period. It is also possible that tenants may lose their homes if the landlord defaults on the mortgage, and
  • some consumers are evicted because they cannot afford the agreed rent, which suggests staying in their property was not sustainable in the first place.

As a result, the main recommendation of today's OFT report is that there should be statutory regulation of the sale and rent back sector by the Financial Services Authority (FSA). The details of regulation will be up to the FSA to determine but the OFT considers it should include:

  • an obligation on sale and rent back firms to be more transparent about the initial valuation and sale price, the terms of the tenancy and the amount of rent to be paid. In particular, firms must offer forms of tenancy that match the assurances they give to customers, and
  • a requirement on firms to tell consumers about the free, independent advice available to them before they decide to sell.

Regulation may also require firms who fail to honour their commitments to offer redress to consumers.

John Fingleton, OFT Chief Executive, said:

'Our research shows that sale and rent back deals have potential to cause serious and permanent harm to often vulnerable homeowners. The unfamiliar and highly pressurised situations that these people find themselves in may leave them particularly vulnerable to misleading statements or valuations from sale and rent back firms looking to make a deal.

'Even those customers for whom sale and rent back might be the best option could be unaware they are currently bearing almost of all the risks.

'Recommending statutory regulation is not something we do lightly or often, however in this case we consider it necessary to put a stop to the unacceptable behaviour of some sale and rent back operators and to ensure consumers are better protected.'

Source OFT http://www.oft.gov.uk/news/press/2008/118-08

Debtwizard comment

This statutory regulation is long overdue. On the 9th May 2008 I expressed my concerns about how sale and rent back is distorting the house repossession figures, go to the media page to see my comments on BBC News (09/05/08).

Sale and rent back is a scheme whereby firms buy homes from individuals’ that are in mortgage arrears and about to be repossessed. These purchases are usually at a large discount and the new owner allows those unfortunate individuals to stay on in the property as tenants. However, this is not always the case; often the new tenant cannot afford the rent and can end up being evicted.

It is estimated that there are in excess of 1,000 firms that have bought around 50,000 homes thus far.

The majority of these firms prey on the individual’s vulnerability, lack of awareness and desperation to stay in the house.

Anyone concerned or feel they have been unfairly treated by a company offering sale and rent back can contact Consumer Direct on telephone: 08454 04 05 06 or visit the Consumer Direct website. The OFT do not provided advice or get involved with consumers

Read more: Sale and rent back firms need statutory regulation - OFT report

 

New figures released today by national charity Citizens Advice reveal that more people are seeking advice on how to manage mortgage and secured loan arrears and fuel debts.

The figures reveal that Citizens Advice Bureaux in England and Wales saw 35% more mortgage and secured loan arrears problems over the last 12 months, compared with the previous 12 months, with 77,324 new enquiries since October 2007. The most recent figures for July to September 2008 (Q2 2008/9) show a 51% increase in new mortgage and secured loan enquiries and a 10% increase in fuel debts compared to the same period last year (Q2 2007/8).

The most common reasons cited for people falling into arrears were loss of job or failure of business (20%), ill health (17%) and relationship breakdown (16%).

Source http://www.citizensadvice.org.uk/press_20081010

Debtwizard comment

Anyone in arrears with their mortgage or secured loan payments should talk to their lender straight away to see what can be done to help. The lender may offer to switch you to ‘interest only’ so as to reduce your monthly payment; this means that you are no longer repaying anything off the capital you have borrowed, just the interest. This can be useful in the short term to help get you back on your feet.

Some people mistakenly pay their credit card debt and personal loans before they pay the mortgage. A mortgage or any loan secured on your property takes priority over unsecured credit card debt, store cards and personal loans, get it wrong and you could lose your home.

To find out more on the different types of debt and what is priority and non priority then click here.

For some families and individuals all that is needed is to get control of their budget and on top of their priority debts, click here to see our free online budget wizard form and its unique built in debt predictor.

Read more: CAB reports 51% increase in mortgage and loan enquiries

 

Deposits with all authorised banks and building societies in the UK are protected under the Financial Services Compensation Scheme (FSCS).

As from Tuesday 7th October 2008, The government will increase the guarantee for bank savings to £50,000 per person; this is a 43 percent increase on the previous limit. Customers with joint accounts will be eligible to claim up to £100,000, but from one institution only.

This increase is in response to the move made by Ireland on Thursday 2nd October 2008 whereby all bank savings there were guaranteed. Banks in Britain had argued that the Irish move had given them a competitive advantage. The increase was announced by the FSA today, and will come into effect on Tuesday 7th october 2008. It is aimed at bringing back confidence to consumers in Britain so as to stop the billions of savings that have been moved from British banks over the past few days.

The scheme to protect savers was initially launched on the 1st October 2007 and until this recent announcement it offered 100% protection for savings up to £35,000 per customer if a bank or building society is unable to pay out on any claims made against it, for example when a firm stops trading or is insolvent.

Before that the previous limit was 100% of the first £2,000, then 90% of the next £33,000.

If an account is held in joint names then each joint account holder will be treated as holding an equal share of the funds in an account, unless there is evidence to show otherwise, and will be entitled to claim compensation on their share. This will remain the same.

The limit applies to each authorized institution.

Warning

If you if you have savings products with different brands owned by the same company then the £50,000 limit applies. For example Intelligent Finance, Birmingham Midshires, Halifax and the Bank of Scotland are all part of the same group and are registered with the FSA under the name of Bank of Scotland. Therefore your current maximum claim is £50,000 irrespective of how many accounts you have.

This issue has recently become significant when Nationwide took over the Derbyshire and Cheshire building societies as many savers who have deposits with all three banks have had their protection reduced dramatically by the deal.

Could a British bank go bust?

Analysts are not ruling it out, but they say it is unlikely. UK banks have already written off a lot of debt which hopefully will make it less likely to happen.

How can I tell who owns what bank?

Where several banks within a group are authorised in their own right (as opposed to on a group basis), a separate £50,000 limit will now apply to each of those banks individually.

You can check whether an institution is authorised at a group level or as a separate entity by checking the authorised firms register through the Financial Services Authority's website www.fscs.org.uk. If you are still unsure, you can contact the FSA consumer helpline on 0845 606 1234.

More information on the Financial Services Compensation Scheme, which also covers insurance and investments (different limits apply), can be found on the FSCS website www.fscs.org.uk.

Read more: How safe are my savings?

 

From September 3rd the Government will freeze the payment of stamp duty on all house purchases up to £175,000, a maximum saving of £1,750. Previously stamp duty was zero on purchases between £0 and £125,000 so in effect the ceiling has been raised by £50,000.

It is estimated that this move would have helped 17% of all house purchase transactions this year.

Other housing moves announced by the government include;

  • First time buyers can apply for a 'free' five year loan of up to 30% of a property's value of new homes in England.
  • Councils and housing associations are to be given an extension of powers to be able to pay off debt for homeowners who can no longer afford mortgage payments and then charge rent.
  • Important change - Shortening from 39 weeks to 13 weeks the period before Income Support for Mortgage Interest is paid.
  • The funding for these measures, which unlike the stamp duty move will only apply in England.
  • Bringing forward spending from future years to encourage more social housing to be built.

HomeBuy Direct scheme

Loans that will be offered to purchases of new properties will be funded by both the state and property developers and will be made available free of charge, for a period of five years, to households in England that earn less than £60,000.

Once the five-year 'free' period is up, home buyers will be asked to pay a fee, amount not known at present. It is hoped that this new scheme will help first time buyers and stimulate the house building industry in these difficult times.

DW Comment

The stamp duty element will cost £600 million with another £400 million to fund the HomeBuy Direct scheme; no details form the Government as yet as to where this money is to come from.

Everyone will be watching with interest to see if housing transactions go up and repossession figures actually level off.

Any help to the home buyer has got to be welcomed, however, the stamp duty relief will not help the south east area of England as the cost of housing is higher there than other areas of the country.

There is also a real issue for home owners that already have their property up for sale just above the new stamp duty rate, for example £195,000. These may be forced to reduce their asking price further to that of the level that stamp duty kicks in, i.e. £175,001. This could cause distortion across the industry.

The shortening from 39 weeks to 13 weeks of the period before Income Support for Mortgage Interest is paid is encouraging news as well.

Read more: Stamp duty gets frozen in attempt to warm up the housing market

 

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