ROOF Blog

Greg and Diane Horoski bought their home before the boom and, when house prices soared, increased their mortgage to finance a small business.

Interest rates rose, health bills poured in, and then the housing market crashed so that they ended up owing thousands of dollars more than their bungalow was worth.

Yesterday they went to court in New York expecting to be thrown out – but instead they emerged with their debt of $500,000 (£300,000) written off and a mortgage-free home.

Judge Jeffrey Spinner ruled that their lender’s behaviour had been ‘harsh, repugnant, shocking and repulsive to the extent that it must be appropriately sanctioned so as to deter it from imposing further mortifying abuse’.

The decision, which is to be the subject of an appeal, offers possible relief for some of the 7.5 million Americans who are behind with their mortgages and face losing their homes.

One in seven homes in America is now in the process of being repossessed as many families find it impossible to pay off the high-interest mortgages that were handed out in abundance when the property market was at its height.

More help was offered to struggling homeowners as the government officially named 34 repossession ‘hotspots’ across the country – including Sedgefield, Tony Blair’s old constituency, and four areas of London.

John Healey, the housing minister, warned that the risk of repossession would ‘stay high throughout next year’, prompting his department to announce it was stepping up support for homeowners in financial difficulty by extending a campaign offering impartial free advice, and tightening rules to make sure repossession is always the ‘last resort’.

More than 300,000 families have already benefited from the advice and support the government has put in place during the recession, the communities and local government department said.

Healey said he was extending the local drive to encourage people to seek mortgage help and advice into 34 areas considered at greater risk due to high levels of unemployment and numbers of court orders for repossessions.

The Council of Mortgage Lenders (CML) has cut its forecast for the number of repossessions this year to 48,000.

Having anticipated 75,000 repossessions in 2009 in last year’s housing market forecasts, the forecast had already been revised down to 65,000 in June, but is now being cut again in recognition of lender forbearance, government measures and the beneficial effect of continuing low interest rates which are helping most borrowers facing difficulty to keep their homes.

Commenting on the latest arrears data and on the new forecasts, CML director general Michael Coogan said: ‘In terms of new lending next year, we expect a modest increase.

‘But it is difficult to see the case for a dramatic upturn in the absence of significant improvement in the wider economic picture. There is a risk that public spending cuts and higher taxes could choke off recovery. So, although we have become more optimistic, we remain cautious about market prospects.’

Research by the thinktank Resolution Foundation shows low-income households – with an average of £15,800 at their disposal – are walking an increasingly precarious financial tightrope.

It has found that 24per cent of low-wage households spend more than a quarter of their monthly income on debt – twice the number from three years ago.

The study shows nearly a third of low-income households have high loan-to-value mortgages and are in negative equity, making them vulnerable to homelessness if they lose their job.

Sue Regan, chief executive of Resolution Foundation, said: ‘What’s important is not so much about when we get out of recession. It’s how sustainable the economy will be going forward if we increasingly see low-income households default on loans or lose their house.

‘If we don’t address this, it has got big economic ramifications for UK plc.’

The foundation is calling for high-street banks to involve themselves more in debt counselling when low-income households miss their first mortgage payment.

A subprime lender has agreed not to repossess for at least six years the home of a man who fell into arrears in what is believed to be the first legally binding deal of its kind in the UK.

Blemain Finance, an arm of the Blemain Group, reached the agreement in a High Court case with Peter Bentley, a carpenter from Bridgend who had lost wages as he cared for his sick father.

The deal is the latest victory by aggressive personal claims companies that are taking on companies responsible for a spate of lending during the credit boom to households that are now struggling to repay.

Personal insolvencies continue to rise, with almost 100,000 in the year to September.

Carl Wright, of Cartel Client Review, the Manchester-based personal claims company, which took Mr Bentley’s case, has been using a clause in the 1974 Consumer Credit Act to argue that many lenders have an ‘unfair relationship’ with uninformed consumers, who often sign up for loans they can ill-afford and which carry heavy penalty charges.

Northern Rock has had its busiest quarter as a mortgage lender since the credit crunch two years ago, lending £1bn in the three months to the end of September.

But the nationalised lender, which is to be split into a ‘good’ and ‘bad’ bank before being sold off, is continuing to suffer a rise in the number of customers falling behind on their mortgage payments.

In the third quarter 4.11 per cent of its mortgage customers were three months or more late on their repayments compared with an industry average, compiled by the Council of Mortgage Lenders, of 2.42 per cent.

The lender blames its problems with arrears on the Together product sold by the previous management which allowed customers to borrow up to 125 per cent of their value of their home.

Northern Rock chief executive Gary Hoffman stressed that the bank was trying to avoid repossessing the homes of customers facing payment difficulties:

‘We continue to invest a lot of effort in our approach to debt management and to providing the best possible support we can in all circumstances’, he said.

Struggling buy-to-let landlords are eating humble pie when it comes to finding tenants.

Checks and references traditionally carried out on tenants to assess their reliability in paying up are now being reversed as renters seek assurances the owner of their new home is legitimate and not on the verge of being repossessed.

David Underwood, a lettings consultant at Darwoods in St Albans, Herts, has noticed a ‘marked shift’ in emphasis:

‘Tenants have been far more interested in landlords’ backgrounds and are asking more questions about where their deposit is being held,’ he says.

It would seem that tenants’ concerns are well founded. When the Council of Mortgage Lenders (CML) started compiling buy-to-let data in the second half of 2005, only 200 investment properties were in mortgage arrears of three months or more.

By the first half of this year, this had soared to 5,400. Repossessions of investment homes also climbed, from 400 to 2,800, during the same period.

Reckless lending to first-time buyers remains endemic in the financial services industry. An investigation by ROOF into the practices of leading banks and a mortgage broker found a worker with an income of £28,000 could borrow more than £153,000 from one high street bank. The repayments would have put an impossible financial squeeze on the buyer, bringing a serious risk of repossession. The amount the banks were prepared to lend in relation to the value of the property was also huge. Many offered an 85 per cent loan and one went up to 95 per cent. Kay Boycott of Shelter said, ‘With latest figures showing over 270,000 mortgages in arrears, it’s shocking to see banks continuing to lend to new borrowers based on such basic checks on their ability to pay. People are being encouraged into home ownership that may not be sustainable and potentially unmanageable debt. There is absolutely no point in giving a mortgage to someone who cannot afford it - every day we see the human fall-out from the repossessions that often follow.’

Housing minister John Healey has told a Common’s Treasury select committee that he would consider extending the homeowner mortgage rescue scheme beyond its current two-year limit, if the economy continues to struggle beyond 2010. He also rejected accusations that the government had been ‘complacent’ with its support for those at risk of repossession, although he warned that ‘a certain level of repossessions is inevitable’ in a recession.

In the first court ruling of its kind a vulnerable family has been told they can stay in their home as owner occupiers or rent it for life, after almost losing it in a repossession sale and rent back scam. The case, bought before the court with Shelter’s help, saw the judge brand the sale and rent back company Repossessions Stopped as ‘dishonest’ for promising the family could stay in their home forever. Within two years of the company selling the property on, the new owner defaulted on the mortgage and the house was repossessed, with the family nearly evicted.