I am delighted to have this opportunity to introduce a debate on a big and important subject. I have two reasons for doing so. The first is local: like many other MPs, I am hearing from a growing number of constituents who are running into mortgage distress or who have faced or are facing repossession, and I wish to speak up for them. But I believe that every MP could say that; there are no special circumstances in my constituency.
The main reason for this debate is to try to pursue a series of questions about the Government’s recent initiatives on repossessions, which I welcomed. Obviously, we will debate these matters on the Floor of the House amid the normal party political banter, but on this occasion I want to take advantage of the short Adjournment debate format to pursue what are, in essence, factual questions about where we are and where Government policy stands.
My starting point is that the Council of Mortgage Lenders has estimated that there will probably be some 75,000 repossessions in 2009, which is roughly the same figure as occurred at the peak of the last recession in 1991. Of course, they are the tip of the iceberg. In the last recession, there were estimated to be some 350,000 cases of arrears of varying degrees of severity, and the current projections are that half a million mortgages may be in arrears of some kind at the end of this year. Could the Minister begin by saying whether he regards the CML’s assumptions as sensible and realistic? Are they the assumptions that the Government themselves use?
I ask that question with a particular point in mind. Three months ago, the CML was using the same figure—75,000. It is still using it despite the introduction of what seemed to be quite promising Government initiatives. Does that mean that the CML’s assumptions are not up to date, or does it mean that the situation is deteriorating? It would be helpful from the outset to get a sense from the Minister of the Government’s working assumptions about the scale of the problem and how it will evolve during the coming year. As to why that is a problem, I hardly need to state the obvious. Repossession is a tragedy for families because it usually involves not just the loss of a job but the loss of a home at the same time. It is a double tragedy.
However, there are some less obvious reasons why repossession is a problem. It is a problem for society, particularly for local government, because of the pressure that it brings to bear on social housing. Over the past few weeks, there has been an upward revision in the number of people on waiting lists from 1.7 million to 2 million, so the pressure is clearly there.
In addition, repossession frequently results in distress selling, thereby driving down the price of housing at a particularly sensitive time and creating additional negative equity problems. Clearly, it is desirable from a wider market standpoint to avert it.
Of course, there are many hidden costs. For example, before this debate I was sent a report on the incidence of mental health problems among people facing repossession. There is a great deal of general anxiety. A YouGov survey suggests that 44 per cent. of all mortgage borrowers are currently anxious.
I would like to proceed by asking the Minister about each of the four components of the Government’s response. There has been a flurry of positive initiatives: the pre-action protocol; the reforms to income support for mortgage interest—ISMI—which involves interest payments under the social security system; the mortgage support scheme in collaboration with the banks; and the mortgage rescue scheme. I shall deal with each of them briefly.
The pre-action protocol, which my colleagues and I had been calling for for some time, was particularly important. It was an intervention in court rules by the Ministry of Justice to try to ensure that repossession is always treated as a last resort, that all other options are explored, and that financial advice is available. As I understand it, the Government’s guidance to the courts should have that effect.
A case that I recently encountered is the kind of case that the protocol should reduce or eliminate. The home of one of my constituents has just been repossessed by a company called Capstone Securities, a subsidiary of Lehman Brothers. My constituent had tried very hard to save his home. He had put an offer to the bank that he would repay 80 per cent. of his arrears on the spot and clear the remainder within two months, but the bank rejected it. It wanted to repossess, end of story, no negotiation. Many people have found themselves dealing with uncompromising, unreasonable creditors who operate in that spirit. My constituent has now lost his home, and because of the delay in selling, has seen all his equity disappear. There are thousands of stories of that kind.
The questions that are now being asked about the Government’s initiative, welcome as it was, are about its limitations, both legal and practical. Can the Minister tell us what kind of assessment the Government are making of how the new system of rules is working? One point that is made is that because the rules are guidance and not binding on judges, the judges quite understandably apply legal principles. They view a mortgage as a contract and therefore do not treat mortgage arrears as they would treat arrears on a tenancy. There is not a test of reasonable behaviour, and therefore mortgage lenders are able to repossess much more easily than a landlord is able to obtain repossession from a tenant.
Another point is that mortgage lenders, particularly those outside the mainstream banking system, are often highly unreasonable. There are cases of legal costs being added to the bill without the need for any reference to the court, and of companies not being obliged to return to the original owner any equity in the property. There is a general unreasonableness in the way that court settlements emerge, and the guidance that the Government have established does not appear to deal with the problem.
An additional difficulty has now surfaced: a legal precedent was set with GMAC just before the Christmas period in which the mortgage lender established that it could repossess without even going to court. Can the Minister give the Government’s assessment as to whether that case is a serious problem or merely an anomaly?
Finally in this category, there are the problems in respect of repossession of buy-to-let property, and the vulnerable position of tenants who find themselves trespassing in their own home and being required to move out quickly, often within hours. I believe that the Government’s new guidance suggests a stay of execution of up to seven weeks, but I would be interested to have confirmation that it is now being followed and is working.
The second area of change is to the ISMI regulations, which cover interest payments through the social security system. The delay once someone is out of work is now 13 weeks rather than 39 weeks, and the scheme is extended to properties of £200,000 rather than £100,000. Clearly, the scope of the scheme has been enlarged. It would be interesting to know how many families the Government estimate will be helped by the enlarged ISMI scheme.
Would the Minister acknowledge that there is a problem in the scheme in respect of households in which two partners are working, which is often the case? An example was given to me of a family in which one partner with a salary of £24,000 loses their job. Their partner earns £7,000 a year in a part-time job, but because they are working more than 24 hours a week they are not eligible under the ISMI scheme at all. Despite a substantial drop in income, they cannot be assisted.
The third area of support, which I shall spend a little more time on, is a mortgage lender-led initiative—the mortgage support scheme. It is an imaginatively constructive idea in which the mortgage lender absorbs interest arrears over a couple of months, and the Government, in effect, underwrite the arrears while they are in the process of being corrected. The feedback that I am getting, particularly from voluntary organisations, is that the scheme is now being very tightly drawn to exclude large numbers of people who might otherwise be eligible for it. One of the conditions, as I understand it, is that it would not include people in negative equity. Of course, in the current environment, that excludes enormous numbers of people, because the market is falling rapidly and those who need help most are effectively excluded from this scheme.
I am also told that one of the difficulties that the banks themselves are advancing is that, by participating in this scheme, they have compromised their position under the financial regulations, because they are required to hold more capital if they have clients who are in arrears. The figures quoted to me show that the equivalent of between 30 and 80 new mortgages might be sacrificed for every case of a family helped under this arrangement. If that happens, it is completely mad and totally undermines the purpose of the arrangement. Is the Minister’s Department discussing with the Treasury and the Financial Services Authority whether these bizarre regulations, which effectively undermine the good work that this scheme is doing, can be modified?
What is the Government’s own estimate of the number of people—the number of families—who will be helped by this scheme? I believe that, on the day it was introduced, the Secretary of State made an estimate of approximately 9,000 people. I have not heard that number confirmed since. It would be useful to have an indication of the magnitudes we are talking about.
The fourth and final intervention is the mortgage rescue scheme, under which people who fall into serious arrears can become tenants in their own homes, which has the valuable objective of ensuring that, even though they cannot cope with the mortgage, they are not forced out on to the streets. I believe that there is a £200 million package designed to make this happen. The feedback that I get is that this is now beginning to work, with the collaboration of housing associations and local councils. Clearly, because this scheme is decentralised, which is potentially a positive feature, it will necessarily be applied unevenly. Do the Government have any mechanism that would tell us where this programme is and is not being applied, whether they are bringing any pressure to bear on councils to introduce it and how they are monitoring its effectiveness? I understand that, for understandable reasons, local councils and housing associations are only willing to take people on if they have limited problems, which, again, excludes people with negative equity difficulties. It would be useful if the Minister provided feedback about what numbers we are talking about. Is the number that has been quoted—about 6,000 in the coming year—correct?
The answer to the problem of keeping people in their own homes, even though they are in serious arrears and cannot sustain a mortgage, is, in the private sector, sale and leaseback, the market for which is flourishing. There were some serious abuses in that market and the Government undertook an investigation, through the Office of Fair Trading, that reported in autumn last year. There is a recognition that that market needs to be regulated. When and in what form will that regulation take effect?
My concluding comments are these. We have had a series of initiatives that are valuable in themselves. However, the feedback that I get from the people who are potential beneficiaries, from the voluntary organisations that represent them and from the industry is that although they are valuable they are very limited. If we add 9,000 and 6,000, which are the estimates so far in respect of the two main Government schemes, we are talking about 15,000 people, potentially, out of 75,000 people, which is an important figure but is still less than a quarter of those involved. That leads to the necessary conclusion that, even with these schemes in place, large numbers of people will have their homes repossessed this year. That raises the question of where they will live.
We are in an environment where the provision of social housing is now deteriorating. Industry estimates show that the total number of units built for social housing in the year to the end of March is likely to be some 85,000, as opposed to 185,000 in the previous year. So we have a shortfall of 100,000, much of which is caused by failures of joint projects with developers. Repossession is taking place in an environment where the provision of social housing is deteriorating. How far do the Government’s proposals match the severity and scale of the repossession crisis that we now face?
I congratulate the hon. Member for Twickenham (Dr. Cable) on securing this important debate. I was struck, on listening to his excellent contribution, by how measured it was. As he said, we can, to some extent, keep party political banter out of this Chamber with regard to such a serious issue. I pay tribute to him for the manner and the measured way in which he addressed his points and asked his questions, as is always the case when he contributes to debates in the House.
In difficult times, the Government are committed to doing everything that they possibly can to provide support in the short term for borrowers facing difficulties and in promoting the long-term stability of the market. What the hon. Gentleman said about repossessions is true. It is a major trauma that is, arguably, the biggest single difficulty that a person can face in their life. It affects people’s relationships, their health—particularly their mental health—their well-being and quality of life. Children can be uprooted from their school and adults from neighbours, friends and family. In the current challenging economic climate, more people are understandably worrying that they could lose their home. The key point is that just as fear of crime is an important consideration that policies need to deal with, repossession and the fear of repossession need to be dealt with, too, so that people who may face economic difficulties and are not, at the moment, facing repossession can be reassured that the Government are providing real practical help and doing everything that they possibly can to ensure that a particular household can keep its home and that it will not be repossessed.
The current figures provided by the Council of Mortgage Lenders show that there have been some 30,200 repossessions in quarters 1 to 3 of 2008, which represents about 0.26 per cent. of all loans. We accept that repossessions are rising, but we must also remember that the numbers affected at present remain small in comparison with the early 1990s, despite the fact that more than a million more householders now own their own home.
I do not want to tell the House that I am complacent and I do not want to provide a lazy approach to this issue. The Government are working night and day to ensure that repossessions are minimised as much as possible. I want to reassure the House, and families throughout the country, that we are determined to help as much as possible. No household that experiences a temporary drop in income through no fault of its own, and which is willing to pay back what it can, should fear repossession.
There is also an onus on householders, who should be required not to put their head in the sand. Instead, they need to talk to the lender if they are facing financial difficulties. In the week when people were returning from the Christmas and new year break, before the House was sitting again, I toured my constituency and visited the citizens advice bureau. In mentioning citizens advice bureaux, I pay tribute to the hon. Gentleman, who is the CAB parliamentarian of the year. It can be important for people to talk to their local citizens advice bureau, which provides real practical help.
As a Government we have taken important steps, as the hon. Gentleman graciously mentioned. We have introduced new schemes and expanded others. We have offered practical help to as many people as possible. The courts have agreed to the mortgage pre-action protocol, a legal agreement which sets out that lenders will only use repossession as a last resort and will look at all the other alternatives with the borrower, whether that involves reducing monthly payments or deferring for a time. Hopefully, that would address the point that the hon. Gentleman made about his constituent, which sounded tragic. Hopefully, that would not happen today. The mortgage pre-action protocol would mean that nobody’s home would be repossessed within three months of the first missed payment.
The hon. Gentleman asked how this scheme is working. I have to say that it is early days. We are working closely with the Ministry of Justice to ensure that we can iron out any potential difficulties. I would welcome the hon. Gentleman’s mentioning relevant cases that he comes across in his work as a parliamentarian, and in his constituency, so that we can find out whether we can tweak out any of the difficulties to ensure that people get practical help.
To help to ensure that households can be given advice, more funding has been made available for national debtline and Citizens Advice to help consumers with money problems. That includes almost £6 million of additional investment to March 2011 in telephone advice and £10 million to March 2011 to expand face-to-face debt advice capacity.
In the pre-Budget report, we announced reforms to the support for mortgage interest scheme. That benefit is available to those receiving jobseeker’s allowance and other income support-based benefits to help people keep up their mortgage payments if they lose their jobs. We have raised the outstanding mortgage threshold so that households are entitled to receive it if they have less than £200,000 remaining on their mortgage, and we have reduced—this is a key point—the waiting time so that people can receive it 13 weeks after they lose their jobs, rather than 39 weeks.
Last week, I was at a meeting of a branch of the trade union Unite in my constituency. It consisted predominantly of subcontractors. As you will appreciate, Mr. Cummings, that is a volatile industry in which there are periods of unemployment. Those people mentioned that they are delighted with the scheme because in periods of economic volatility and uncertainty about jobs, it can provide practical help.
For vulnerable households that would be otherwise eligible for homelessness assistance if their homes were repossessed, such as families with children, the elderly or the disabled, we have set up the mortgage rescue scheme. Those at risk of repossession because of other loans secured against their homes are also now able to apply.
If the home owner can keep up some mortgage repayments, the local authority or housing association will buy a share in the home so that the monthly mortgage repayments are cut. If home ownership is no longer a realistic prospect, the local authority or housing association will buy the home outright and the family will be able to stay there as a tenant. Largely thanks to the proactive work of my right hon. Friend the Minister for Housing, we have brought forward the introduction and implementation of that scheme. The first 80 authorities began fast-tracking their mortgage rescue schemes in December, and we shall announce imminently what is happening with other authorities.
We are in the process of establishing a new scheme to help people who are having trouble making payments but are not eligible for ISMI—income support for mortgage interest. We have in mind families in which perhaps one person within a couple has lost their job or income or experienced a dramatic cut in overtime or payments. Applicants must have an outstanding mortgage of less than £400,000 and savings of less than £16,000. We estimate that this will take care of 98 per cent. of all mortgages. People have to prove that they have suffered a serious drop in income, demonstrate that they have kept up some repayments for at least five months and commit to paying at least 25 per cent. of their existing monthly payments. The rest of their payment will be deferred and added on to the end of the term, guaranteed by the Government and the bank. After a year, the bank will look again at the circumstances and, if necessary, extend the deal for another year. The idea is to make monthly payments more affordable, giving people practical help and valuable breathing space to get back on their feet.
The scheme is voluntary, but already the country’s eight largest lenders, representing 70 per cent. of lending, have agreed to support the new scheme and pledged to work with the Government to develop it. Since the day of the Queen’s Speech, when my right hon. Friend the Prime Minister announced it, we have been working with about 15 of the major lenders to get the scheme off the ground. We hope that the remaining lenders will also participate.
We expect the scheme to help significant numbers of households to avoid repossession over the next two years. The hon. Gentleman mentioned a possible target of 9,000 households being helped. The Minister for Housing has been absolutely clear about the fact that we are not setting a target or a cap on the numbers that might participate. It will be a demand-led scheme. People can feel reassured in coming forward that they have not missed a cut-off point. It is not the intention at all for household 9,001 not to be provided with help; the intention is to provide practical help to all households that need it.
My right hon. Friend the Chancellor of the Exchequer has announced a lending panel to bring together the Government, regulators, lenders, trade bodies and consumer groups. The panel will monitor lending to both households and businesses, encourage best practice throughout the mortgage market and ensure that lenders are aware of all the alternatives to repossession.
We are working to address a number of concerns affecting specific groups. The hon. Gentleman alluded to that. The Office of Fair Trading is developing guidance to help those who have taken out extra loans against their homes. The practice is known as second charge lending. The guidance will stress the importance of treating borrowers sympathetically and doing everything possible to avoid repossessions. New industry best practice guidelines, published in December, clearly set out how people can expect to be treated by their lender if they are experiencing difficulties.
The hon. Gentleman referred to the sale to rent back market and the OFT’s market study in that regard. It recommends that that market is brought within the scope of FSA regulation, and we shall be consulting on that shortly.
The hon. Gentleman touched on a very important matter. The fear of repossession and repossession itself do not hit just home owners. They also hit tenants; they, too, are potentially vulnerable. We need to act to help tenants who are not in arrears and who are working hard and paying their rent, but who face the prospect of their home being repossessed, through no fault of their own, if their landlord has secured a loan on the property. At present, evidence suggests that buy-to-let landlords are no more likely to be affected by repossession than other households. However, I am concerned about the issue and I recognise that tenants in the private rented sector would face eviction in the circumstances described, which seems unfair.
To protect those tenants, we shall ask the Civil Procedure Rule Committee to amend the rules so that buy-to-let tenants get up to seven weeks’ notice if their landlord’s mortgage defaults. At the moment, as the hon. Gentleman said, they have notice of as little as two weeks or even a matter of hours, which is not fair. We encourage all landlords and lenders to communicate with tenants so that they are given time to make alternative arrangements if their home is at risk. We also want to ensure that tenants who are at risk speak up, get independent advice and attend the court hearing so that their needs are taken into account.
I return to where I started by saying that in these unprecedentedly difficult times, in which we are facing global financial pressures the likes of which we have not seen for many decades, the first priority of the Government is to reassure people. We need to ensure that wherever possible, families do not have to suffer the trauma and upheaval of repossession. People also need to be reassured that they do not need to fear repossession. All households at risk can benefit from the new emphasis on repossession as a course of last resort, and from the enhanced debt advice services. As I have made clear, we are also putting in place a variety of schemes, offering tailored and specific support depending on the individual circumstances.
In a debate in this Chamber earlier today, I said that the watchword was “flexibility”. We need to work across Government, whether that involves the Treasury, the Department for Work and Pensions, the Ministry of Justice or my Department, to ensure that we have a seamless product that can provide practical help to families in order to minimise repossessions as much as possible. We need to be flexible. We need to learn the lessons from what happens on the ground, which the hon. Gentleman and others will bring forward, so that we can tweak out some of the teething troubles that we might see with these innovative schemes.
In these difficult times, we are determined to provide real help to households that are frightened. We need to reduce that fear as much as possible and we have put in place schemes to help to do that. The Government are ambitious to do more and I am sure that, working together in a cross-party consensus—that was the manner in which the hon. Gentleman made his excellent speech today—we can do more.
Question put and agreed to.