A bit about Shelter and what we do. Some general stuff about the seminar series and what else Shelter is doing in relation to the work funded by SLAB: Awareness raising events Training to gear up lay representation Information resources – for both advisers and public Emphasise how closely we worked on the Repossessions Group and with the Bill Team / MSPs on Committee. So purpose of today is to give an overview of the new legislation and the context in which it has been developed. We’ve invited experts from different backgrounds and different perspectives to give you their views but a big part of the day is about the questions you ask and opinions you express. All of the presentations you see today will be available on the Shelter website.
So my job, first of all is to set the scene. Go through bullets I am only going to be covering part 1 of the Act which is the main part dealing with repossession. In the afternoon part 2 of the Act – covering sequestration will be covered. Some of what I say I know is covered in more depth by other speakers later on.
This will be familiar territory so I’ll be brief . We all know what happened with the banks in late 2007 and then into 2008. We all know that when recession hits and unemployment rises then mortgage repossessions go up. There’s good news in that the 2009 peak of repossessions across the UK – at 48,000 – was not as high as once had been predicted. That’s testimony to the success of various initiatives put in place quickly and to the restraint shown by many lenders at least for now. We have also been lucky to have a sustained period of low interest rates. That too won’t last for ever. 48,000 repossessions last year compares to less than 8,000 in 2003 – so a very substantial increase. We all knew this was coming. We all knew that house price inflation since 2000 was unsustainable and that we were simply stacking up the moment of the crash. The tragedy was that we have been through it all before. In the early 1990s a chastened industry said no more 110% loans. No more mortgages at 5X income. Where was that sobriety 15 years later.? Gone. And we were back in the land of ever-rising house prices and self-certified mortgages. So there are some big challenges for policy here too.
I put this slide up because it was the framework which Shelter suggested to the Repossessions Working Group and was accepted by the group. It shows that there’s a range of different ways in which we can help struggling home-owners and legislation is only part of the package. For example, point 1 is largely about issues of practice – how lenders and independent advisers can get in early and prevent problems escalating through tailored and easy to understand advice. Point 2 is about utilising some of the various schemes – such as HMS or SMI which might help people get over short term difficulties. But there’s a really important point here. We want to avoid and reduce repossessions. But policy is not about simply about keeping people as home owners come what may. Sometimes that is simply to expose them to more debt and more stress. It is right in some occasions to assist people either to remain in their home in different arrangements – as a tenant rather than home-owner. Or even to make a move to alternative accommodation like social or private rented housing. But to do so in a measured way rather than as a crisis. I’ll leave you to judge how well we have covered all 4 approaches in the framework for homeowners which has emerged in the last two years.
We were not working in a vacuum in 2008. There was already a framework for action. SMI: for loans of up to £200,000. The rate at which interest can be paid is currently fixed at 6.08 per cent. However, the Government has announced that from October 2010, it will be paid at the level of the Bank of England’s published Average Mortgage Rate. This rate is currently between around 3.63 per cent and 3.99 per cent, depending on the type of mortgage you have. This change will mean that the amount you receive will change monthly, as Bank of England rates rise and fall. Shelter is pushing for for the rate to be paid at the rate of interest that people are currently being charged instead. HMS: Homeowners Mortgage Support allows qualifying homeowners to delay paying part of the interest on their loans for up to two years. It’s designed to help people who are having trouble keeping up with their repayments because their household income has fallen temporarily. The interest that you do not pay while you are on the scheme is added onto your outstanding mortgage. The fact that there was already quite a lot around was used by some critics to argue that further action was not needed. They said that repossessions had not risen as much as expected. They said that we would be out recession by the time action had been taken. However, that really mis-reads the situation. Recession or no recession, the framework in Scotland needed overhauled. The MRA was already flawed as it required struggling home-owners to apply to courts to exercise rights and so was little used. The Scottish Government agreed and set up the Repossessions Group
Key point here is that legal changes were only a small number among many recommendations made. Acts of Parliament get a lot of the attention but there were a number of other important recommendations that must not get lost. I’ll cover these in the next slide. But two points to make here. First, that although the RWG has wound up Shelter still takes part in the Repossessions Advice Group which is convened by SLAB and is looking at the practical stuff. Secondly, the main group did get back together in 2010 to look at one issue which had not been covered properly in 2009: that is, the problems faced by private tenants where it is the landlord that is defaulting on the mortgage but has not told the lender that they have a tenant in situ. The group produced a second report in June 2010 which the Scottish Government is now using to prepare an amendment to the Housing Bill currently in Parliament. In essence the amendment will make it clear in statute that a lender which takes action against a defaulting owner, must also take a separate action under the Assured Tenancy regime to remove any tenant. This should ensure that a tenant is given proper notice and an opportunity to contest an eviction if there are grounds.
The legislation is the HODP which come to in a minute. Advice recs included – publicity warnings on Sale and Rent back; ensuring those at risk of losing jobs are given advice as to repossessions
Section 2 of the 2001 Act was the part that allowed Courts greater discretion to allow additional time or take into account different circumstances when considering a mortgage repossession case. It has been repealed but parts of it replicated in the new legislation.
This is a very brief overview as almost all speakers this morning will elaborate in more detail. I’ll come to pre action requirements and lay reps in a moment but I wanted to say a bit about voluntary surrender. It is important because there may be times when it is a borrowers interest to get out quickly rather than face the delay and additional expense of court action. In that case the lender can take possession simply by a borrower giving signed notice that he or she is content to leave. However, it is important that voluntary is indeed voluntary and I’d stress the importance of independent advice for borrowers in this situation. Further, Shelter would like to see a standard form produced for all borrowers to sign – one that makes clear to borrowers – in PLAIN ENGLISH – what the consequences are. The other two points here relate to recall and transition. The new route to court for mortgage cases will be summary application rather than ordinary cause so the Act makes specific provision to recall decrees even if the Sheriff Officer is due at the door – as long as the case has not already been heard. Finally, there’s transitional arrangements. Broadly, if a case is already at legal action stage at commencement date it will continue under the 1970 or 1894 Acts. There some caveats to that which other speakers will cover.
PARs are the beating heart of the Act and the main innovation. They are very close to the PAP in England (lenders asked for this as most operate across the whole of the UK). However, the PARs have legal teeth in that the Court must take them into account even if the debtor is not present in court. If the lender cannot show that it has conformed with the PARs then it will not be permitted to pursue court action. In practice the lender will have to submit a standard checklist to the Court. The PARs themselves are set out on the face of the Act and elaborated on in secondary legislation and in guidance but I have picked out three key areas here.
The second innovation I have highlighted is to allow lay representation in mortgage cases. This is in recognition of the limitations of legal aid and the capacity of formal legal advice in some parts of Scotland. However, this will not be carte blanche for your Aunt Janet to represent you in court. You will have to be from an organisation that can show it has met certain standards and also satisfy the Sheriff that you are competent in court.
Finally I wanted to throw in a few challenges of making all of this happen. Transition I have already touched on. The next year is going to be messy with cases under different regimes at different court stages. It will pass. Part of today is about gearing up the advice sector for a greater role. But we can never be certain what the volume will be so we need to keep a close eye on the capacity of the sector – voluntary, statutory and legal – to meet new demands. Plain English is still work in progress. Standard forms for issuing by creditors and courts which have been produced so far are better than what came before but are still quite daunting. Meanwhile, expenses, I think, are unfinished business from the Group. The provision for lenders to charge expenses to the borrowers account through standard conditions in a mortgage contract sits uneasily with the new arrangements and the new balancing point we have. And none of this is happening in a vacuum of course. I don’t like to be a pessimist but the only way for interest rates and unemployment is up. There’s a lot of work to do. Hopefully today you’ll get a good grasp of how the new Act can help you help struggling home-owners. But it is only part of the story.
Shelter Scotland – Home Owner and Debtor Protection Act in Context
Home Owner and Debtor Protection Act in Context Gavin Corbett Policy Manager
Overview <ul><li>Background </li></ul><ul><li>Repossessions Working Group </li></ul><ul><li>Overview of Act </li></ul><ul><li>The challenge of implementation </li></ul>
Background <ul><li>Economic climate – global banking crisis </li></ul><ul><li>Rise in repossessions </li></ul><ul><li>Housing market conditions </li></ul>
Framework for dealing with repossessions <ul><li>1. Prevention of problems in the first instance: advice and early action. </li></ul><ul><li>2. Provision of support to sustain home ownership through periods of difficulty if it is appropriate to do so . </li></ul><ul><li>3. The opportunity to retain a home under different arrangements. </li></ul><ul><li>4. Smooth transition to other housing. </li></ul>
Background <ul><li>UK / England </li></ul><ul><li>mortgage rescue, </li></ul><ul><li>financial support, </li></ul><ul><li>pre-action protocol, </li></ul><ul><li>Homeowner Mortgage Support Scheme </li></ul><ul><li>2. Scotland: </li></ul><ul><li>Mortgage to Rent, </li></ul><ul><li>Mortgage Rights (Scotland) Act 2001, </li></ul><ul><li>Section 11 of 2003 Act. </li></ul>
Repossessions Working Group <ul><li>Set up January 2009 – concluded in May 2009 (reconvened Spring 2010) </li></ul><ul><li>To look specifically at legal measures and other forms of help for struggling home-owners </li></ul><ul><li>28 recommendations covering: legal changes, advice, financial support, joint working, data collection, court processes and legal aid. </li></ul><ul><li>Reconvened to look at tenants of defaulting owners. </li></ul><ul><li>Some work continues in Repossessions Advice Group </li></ul>
<ul><li>Legislate to strengthen protection for home-owners </li></ul><ul><li>Address gaps in advice provision </li></ul><ul><li>Lenders to exercise forbearance </li></ul><ul><li>Lenders and courts to use plain English </li></ul><ul><li>Eligibility for legal aid to be kept under review </li></ul><ul><li>Better Scottish-specific data on mortgage arrears and repossessions </li></ul><ul><li>The report also directed some recommendations to the UK Government: on SMI, HMS and role of FSA. </li></ul>Some key recommendations
Home Owner and Debtor Protection (Scotland) Act 2010 <ul><li>Passed February 2010; main commencements September 2010. </li></ul><ul><li>Part 1 deals with repossessions; part 2 with sequestration and trust deeds. </li></ul><ul><li>Part 1 amends the following Acts </li></ul><ul><li>Conveyancing and Feudal Reform (Scotland) Act 1970 </li></ul><ul><li>Heritable Securities (Scotland) Act 1894 </li></ul><ul><li>Mortgage Rights (Scotland) Act 2001 (Includes repeal of Section 2) </li></ul>
Overview of HODP Act <ul><li>Requires all repossession cases to call in court (except voluntary surrenders) </li></ul><ul><li>Establishes a set of minimum steps to be taken before a creditor can commence legal action: “Pre Action Requirements”. </li></ul><ul><li>Opens up scope for lay representation </li></ul><ul><li>Allows for recall of decree. </li></ul><ul><li>Certain transitional arrangements </li></ul>
Pre Action Requirements <ul><li>Modelled on Pre Action Protocol in England and Wales (Nov 2008) </li></ul><ul><li>Consistent with MCOB 13 </li></ul><ul><li>Lenders submit a PARs checklist to Court. </li></ul><ul><li>Clear information about arrears and other expenses </li></ul><ul><li>Reasonable efforts made to make arrangements to clear debt </li></ul><ul><li>Desist from action if alternative arrangements are being made </li></ul>
Lay representation <ul><li>Advisers other than solicitors or advocates if: </li></ul><ul><li>Sheriff is satisfied that you are competent; and </li></ul><ul><li>You are from an approved list of authorised organisations set out in secondary legislation </li></ul><ul><li>Guidance published by Scottish Government </li></ul>
Challenge of implementation <ul><li>Transition period </li></ul><ul><li>Advice sector capacity </li></ul><ul><li>Plain English </li></ul><ul><li>Expenses </li></ul><ul><li>Interest rates / economic context </li></ul><ul><li>HODP Act only part of what needs to be done </li></ul>