Sold out

One family in Wychavon bought a home council with a sub-prime loan for £16,000 – but they subsequently took out a second mortgage and loans secured against the property that increased the level of debt to £184,000 – that is, eleven and a half times the original loan, a rise of more than 1,000 per cent.

But having been cajoled by sub-prime lenders into taking on excessive mortgages and second charge loans, homelessness applicants find that councils have no choice but to deem them intentionally homeless – and therefore have no legal obligation to house them.

And this is regardless of the fact that the majority are families with children and in priority need.

Applicants are judged to be intentionally homeless if their actions – such as taking on high levels of debt – contributed to them losing their home. Councils are legally required to house unintentionally homeless people who are in priority need (providing they are eligible for assistance and have a local connection). But this does not apply in intentionally homeless cases – even though these are often people who are in greatest need of assistance.

Nothing on offer

‘If they are found intentionally homeless, there isn’t anything we can offer,’ says Maggie Orr, a homelessness officer at Ashfield district council in Nottinghamshire, where seven out of 16 cases of intentional homelessness – almost 50 per cent – were the result of mortgage arrears. One family purchased a home from the council for £24,000 and during the next three years remortgaged the property up to £68,000, on top of which they took out three additional secured loans.

People are being caught in this position as a direct result of the mis-selling of secured sub-prime loans. And homelessness officers fear that the numbers are set to soar, as homeowners who have been encouraged to borrow more than they could afford will be tipped over the edge by the recession.

There are estimated to be 730,000 borrowers in the UK with sub-prime mortgages. According to a poll by Shelter, 22 per cent of them say they are struggling or falling behind with payments.

‘We are only starting to reap the consequences of this irresponsible lending,’ says Mary Unwin, homelessness officer at Wychavon district council in Worcestershire, where nine out of the 17 households found intentionally homeless in 2018 were the result of mortgage arrears.

‘All it takes is for someone to lose a few hours overtime and everything comes crashing down. We’re starting to see the result of that now and it’s going to get worse.’

Council officers argue that the problem was largely created by the sub-prime lenders, who they accuse of deliberately lending to people who they knew would default.

‘We’re talking about people being offered mortgages that they could never hope to pay back on a wing and a prayer,’ says Alan Palczuk, monitoring and policy officer at Newcastle city council, where seven applicants were found intentionally homeless because of mortgage arrears in 2018.

‘They buy for £40,000 and the lender says here’s another £50,000 – take it, it’s your money, even though the borrower has no hope of meeting the repayments.’

Mary Unwin agrees: ‘If you can give someone up to six times more than they are earning that can’t be responsible. They deliberately target people and lend as much as possible because it’s copper bottomed. They know they’ll get their money back.’

Stephen Hamilton, housing options manager at South Tyneside council, where 10 out of the 55 households found intentionally homeless were because of mortgage arrears, says, ‘When someone is given a loan that they will manifestly struggle to pay back, that to me is mis-selling.

‘We’ve dealt with cases where the people were doomed from the day they signed the paper. One woman signed the mortgage payments that used her entire income. Not a penny left for anything else.’

A couple in North Hertfordshire was given a self-certified mortgage without any check on their income. If a check had been made, it would immediately have been obvious that they could not afford the payments. They got into debt right from the start.

A local housing officer says: ‘It was irresponsible of the lenders. They’re not bothered. The property was sold, but they don’t care if the family is homeless – getting their money back is all they’re interested in.’

Borrowers at fault

While lenders are accused of mis-selling, borrowers are not entirely blameless. ‘There is always another side of the story, and as well as irresponsible lending, there are people who are culpable in their own borrowing,’ says Kim Mylchreest, home choice manager at South Gloucestershire council.

In one instance, a woman had taken out a secured loan and spent the money on a boat. Others had run up huge debts supporting a lifestyle they could ill afford. Self-certification allowed borrowers to take on large mortgages without evidence of income or ability to pay. And some brokers encouraged borrowers to exaggerate earnings – in some cases, borrowers claim they were told to indulge in outright lying. Lenders turned a blind eye while the housing boom guaranteed returns on even the most dodgy loans.

A homelessness applicant at Redditch council in Worcestershire claimed that his broker put down a highly inflated income to make him eligible for a bigger mortgage. ‘That says it all. It is without doubt irresponsible lending,’ says council officer Elise Hopkins.

Local authorities have a duty to provide temporary accommodation to intentionally homeless cases in priority need, to give them a ‘reasonable opportunity’ to secure an alternative. This often amounts to just 28 days, and then the applicant will be asked to leave – whether they have found somewhere or not.

‘If you put a family with two or three kids into temporary accommodation it doesn’t do them any favours,’ says Alan Palczuk. ‘What are you going to do at the end of the 28 days? Dump them on social security and say here you go, it’s your problem?’

In many areas this is exactly what happens. In North Hertfordshire, there were two cases of intentional homelessness related to repossession in 2018 and they were both referred to social services.

‘If there are children under 16 in the household , we would make a referral to social services to make them aware that the family has been found intentionally homeless and that we are not providing permanent accommodation,’ says Maggie Orr.

Applicants who are not in priority need also receive less assistance if they are found intentionally homeless. In Ashfield, they do not qualify for the local authority’s bond guarantee scheme, designed to help people into the private rented sector. The council argues that public funds should not be spent on people who have been financially irresponsible.

They have to rely on family members to act as guarantors or loan them money for a deposit, or find a landlord willing to take them without a deposit.

‘It’s a difficult situation and they are on their own,’ says Maggie Orr. ‘They are stuck in the middle where there isn’t any protection – there’s a big hole in the net.’ However, many councils do provide intentionally homeless cases with access to rent deposit and bond guarantee schemes to help them into the private sector.

‘I don’t think we ever find someone intentionally homeless and don’t re-house them,’ says Sandy Page, housing options team manager at St Edmundsbury borough council, in Suffolk, where a private sector leasing scheme is in place. In South Tyneside, the council shares responsibility with social services.

Stephen Hamilton tells ROOF: ‘Invariably the people we are dealing with are families. The council has a protocol whereby the homelessness service and social services work together to advise and assist families with children, who are intentionally homeless. In exceptional circumstances and following a detailed assessment of the family’s needs, the two departments have agreed to pool budgets to help these families secure accommodation in the private sector.’

However, the extra cost of private accommodation – and the lack of security – often results in families finding themselves homeless again after a short period. If the landlord wants to evict them once a tenancy reaches the end of its term, tenants could lose the deposit or bond, and have to submit a homelessness application again.

Tonbridge and Malling council in Kent had one intentionally homeless household due to mortgage arrears in 2018, helped by a deposit scheme into a private rented property. Housing officer Jane Rogers acknowledges that, if the family had to leave at the end of the 12-month contract, the deposit would not be carried over to another property. If they needed to make another homelessness application, the reasons behind the prior intentionality decision could still have a bearing on the outcome.

Caseworkers fear that such cases are increasing. There is currently an abundance of private rented accommodation, but many owners are only renting out properties while they wait for the market to pick up.

‘Heaven knows what will happen when house prices go up and people want to sell,’ says Brenda Harbon, homelessness officer at Redditch, where five applicants were found intentionally homeless because of mortgage arrears. ‘We might be seeing an influx of notices to quit being served.’

Part of the problem is that borrowers frequently do not realise the risks they are running when they take on a big loan – they aren’t experts in finance.

‘For some, home ownership should never have been an option,’ says Alan Palczuk. ‘They may be too naïve. One applicant just didn’t understand that the house could be taken off her if the payments weren’t made. She thought it was more secure than renting through the council. She truly believed that if you buy, it is yours and no one can take it off you.’

Maggie Orr says, ‘People have a deal put in front of them and don’t consider it fully. They just want to own the property. They don’t look at the small print and agree to the terms. Some of the lenders know that – they’re fully aware that some of the people they are lending to aren’t grasping what’s going on.’ Borrowers who had acquired properties through right to buy were particularly vulnerable. They had small mortgages compared to the property’s value, so there was a lot of untapped equity – which made them the target of unscrupulous lenders and brokers.

Local authority housing officers confirm that the victims were predominantly council tenants who had exercised the right to buy. ‘They tend to buy the property and the mortgage company says to them if you add another £20,000 you can do the windows, add a conservatory – and it’s too much of a temptation for people,’ says Brenda Harbon.

They argue that there should have been more stringent checks on borrowing. Many officers are scathing about how easy it was for borrowers to be given loans far in excess of their ability to pay.

‘The government should be saying to lenders, if you’re going to lend someone £50,000 for a property you must do a full income assessment and satisfy yourself that this person can meet the repayments along with the council tax, bills, the whole thing,’ argues Stephen Hamilton. ‘If you don’t do that or you ignore it and they fall foul that’s your problem, not theirs.’

Officers would also like to see a programme of education on the risks of debt to warn people of the pitfalls of excessive borrowing. ‘I think personal finance should be in the schools. People by and large look at the payment and don’t think of things like interest rates,’ says Stephen Hamilton.

‘When people are given right to buy, they ought to go along to something like marriage guidance counselling, because they have never had anything so big,’ says Mary Unwin. ‘They buy a place for £16,000 and it’s probably worth about £120,000. Some people on right to buy can’t manage their finances and haven’t any knowledge about what to do once they’ve got the house. If they get someone knocking on the door offering a loan they’re going to jump at it.’

Council officers believe that the number of cases they are seeing is only the tip of the iceberg and most expect mortgage difficulties among this group of borrowers to go on rising sharply in 2019.

‘More people are coming through because of the economic climate,’ says Sharon Watkins, housing advice team leader at Warwick district council. ‘Where people were struggling before and perhaps just about getting by, they’re not even getting by now.’

Worse to come

Most local authorities fear a massive upsurge in homeless cases resulting from repossessions as incomes fall and unemployment rises – and a sharp increase in the numbers of intentionally homeless as a result of mortgage arrears.

‘I think it’s the calm before the storm,’ says David Gray, housing needs manager at Tandridge district council in Surrey, who had a single case of intentional homelessness due to mortgage arrears in 2018.

‘We do expect that there will be a large increase in the people seeking help because of the loss of their home.’

Gray stresses that cases which are a direct result of the economic downturn, for example when someone is made redundant, would not be deemed intentionally homeless.

But no proper safety net exists for people who have borrowed beyond their limits. And rising numbers of homeless households will put strain on already overburdened local authority resources. ‘The problem is how we deal with the increase because we’ve got the same resources but we’re seeing a lot more people. We’re going to get to the point where we simply run out of accommodation,’ says Sandy Page.

The government is committed to curbing repossessions through the introduction of mortgage support schemes and the pre-action protocol, which is intended to buy time for borrowers to sort themselves out and reach an agreement on paying back arrears. But such moves come too late for sub-prime borrowers who have mortgaged themselves up to the hilt and are now being threatened with repossession.

‘The mortgage rescue scheme doesn’t apply to sub-prime lenders,’ says Maggie Orr.

‘Sub-prime lenders aren’t interested in seeing what they can do to help the customer. They want to repossess the property as quickly as possible and get their money back. That’s their bottom line. We’ll take the house and that will be it. It’s not about customer service or customer loyalty. They couldn’t care less.’