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Housing: Repossessions

Volume 699: debated on Thursday 13 March 2008

Lord Barnett asked Her Majesty’s Government:

Further to the Chancellor of the Exchequer’s Budget proposals, whether they will expand on their proposals to help to prevent early home repossession orders.

Lord Davies of Oldham: My Lords, the Government have introduced statutory regulation to help to ensure that lenders lend responsibly and borrowers are able to make informed choices. The Government provide targeted support for those experiencing difficulties through the provision of debt advice and support for mortgage interest. The Government welcome the industry's recent statement setting out the steps that it is taking to help to support borrowers. The Civil Justice Council’s Housing and Land Committee is currently consulting on a draft mortgage protocol.

My Lords, I really do thank my noble friend for that Answer. It looks like something may be being done. As he knows, there is growing evidence of a big increase in early foreclosures. Has the Treasury considered the Ministry of Justice’s recent proposal to help borrowers who are in trouble with temporary financial difficulties by arranging a court order to prevent early foreclosure? Will my noble friend have a word with the Treasury about that?

Certainly, my Lords, we are eager to ensure that people holding mortgages are able to avoid court proceedings and repossession and we are giving advice on how they can so organise their affairs. The important thing is that the mortgage lenders also have a real interest in using repossession only as a last resort. Therefore, they are eager to co-operate with strategies that ensure that, as far as possible, people are helped when they get into difficulties with their mortgages.

My Lords, the Budget headlines yesterday were for more taxes for ordinary families. The small print of the Budget shows that the Treasury forecasts that house prices will fall in real terms. Did the Budget have anything at all to reduce the increasing likelihood of a rising rate of mortgage default and therefore repossession?

My Lords, the House will recognise that the rate of repossession is considerably below that of the 1980s and early 1990s. That is a reflection of the fact that interest rates are considerably lower than in those rather drastic times. The noble Baroness will appreciate that the Chancellor, in defending a robust economy, is able to emphasise that the rate of repossessions, although it may increase to a degree, will be nothing like what was experienced in the past. Both the Financial Services Authority and the Office of Fair Trading are involved in improving regulation and advice in order to help people holding mortgages when they get into difficulties.

My Lords, even with my imagination I did not realise that this Question was about yesterday's Budget, but if it is, is my noble friend aware that, from a macroeconomic standpoint, the Chancellor got the budgetary position pretty well exactly right? One can hope only that the Monetary Policy Committee does not do something stupid to offset that, but that is by the way.

On the Question itself, should we assume that, on the whole, banks and building societies are rational, and therefore, with the housing market as it is, they would not rush into premature housing repossessions? Would I be right in understanding that the Treasury will act in a minimalist fashion on this and again rely on the free market—in this case the banks and building societies—to behave sensibly?

My Lords, the Treasury will act in a supportive role with regard to the free market. There are areas in which government agencies are able to improve the position—the quality of financial advice and the understanding that individuals have with regard to their mortgage commitments. All this can and should be improved. The Government can provide some pump priming in this area. But broadly my noble friend is absolutely right that we can rely on the mortgage lenders to act responsibly. More than 50 per cent have already given a lead by cutting their interest rates in line with the most recent Bank of England cut.

My Lords, can the Minister confirm that the normal advice given by mortgage lenders to borrowers facing temporary difficulties is to request to pay interest only?

My Lords, that is certainly so. Mortgage lenders have an interest in the ongoing relationship with the mortgagee and the point of last resort is repossession. They do adopt such strategies to help borrowers and, on the whole, have good relationships with them. That does not alter the fact that we all recognise that we are going through bumpy economic times and there will be difficulties for some individuals. That is why the Government are concerned that the Financial Services Authority should do additional work on its support in this field.

My Lords, it is well known that Northern Rock has been particularly active in the repossession field in recent months, which is, no doubt, a reflection on the quality of its lending. What guidance has the Treasury given to Mr Sandler about this?

My Lords, I think I should convey to the House that the Government are not going to monitor every single act of the chief executive of Northern Rock. The arm’s-length relationship guarantees that that should not be so; the Treasury is not running Northern Rock. What we will do in due course, as has been promised to both Houses of Parliament, is publish the framework agreement between the Treasury and Northern Rock. The noble Lord will see from that—I have no doubt that it will condition future questions—that it would not be appropriate at the Dispatch Box for a Minister to comment on every single action by the chief executive.

My Lords, does the Minister agree that every effort should be made before any repossession takes place to keep families in their homes? Will he therefore support proposals that in every case before court proceedings are taken informal arbitration takes place to try to find a method to keep people in their homes?

My Lords, that generally does take place, for the reasons I identified earlier. The mortgage company or bank has no interest in repossessing, except as a last resort. We are seeking to strengthen that. The whole point of the increased work of the Financial Services Authority and the Office of Fair Trading is to give greater support to families in difficulty in terms of information and knowledge on how to handle their negotiations with the building society or bank when the issue arises.