Dignified Exits: Making the transition from unsustainable homeownership to renting

1. Dr Alison Wallace, Centre for Housing Policy alison.wallace@york.ac.uk http://www.york.ac.uk/chp/ Dignified Exits: Making the transition from unsustainable homeownership to renting Wednesday 18 April2012 ‘How is the Housing System Coping?’ Housing Studies Association Conference.

2. Overall aims of presentation • Overview of research and methods • Market context • Overview of arrears, possessions and risks • Preventing repossessions policy responses • Making decision whether, when and how to leave • Mortgage rescue • Assisted Voluntary Sales • Conclusions

3. Research • Wallace, A., Quilgars, D. and Ford, J. (2011) Exiting Unsustainable Homeownership: Understanding current practice and the potential of Assisted Voluntary Sales. London: Shelter. • Wilcox, S. Wallace, A. Bramley, G. Morgan, J. Sosenko F. and Ford J. (2010) Evaluation of the Mortgage Rescue Scheme and Homeowners Mortgage Support . London: DCLG. • Ford, J, Bretherton, J, Jones, A & Rhodes, D. J (2011) Giving up Home Ownership: a qualitative study of voluntary possession and selling because of financial difficulties. London: DCLG.

4. Market context remains poor Lenders and borrowers entered recession more exposed than ever before Low base rates, forbearance, SMI changes effective, but… Economic recovery slowed, public sector cuts Prospect of rising interest rates (SVRs/BoE?) Weakening state support to borrowers (SMI/MRS) Stagnant (falling) housing markets Regulatory and business pressures on lenders Large pools of entrenched arrears and debt remain Prompts debates about unsustainable accounts

5. Mortgage arrears and possessions (CML)

6. Other risk indicators 2007/8 SEH odds arrears lone parents, self employed, routine occupations and unemployed. Social gradient. Shelter - people paying housing costs with credit cards Voluntary sales in arrears 130,000 2009-2011 >repo Struggling to meet costs 15% SEH 12-13% NMG /BoE FSA 8% (1.2 million) on forbearance terms, 12% NMG/BoE (1.8 million) (Interest only, payment holiday etc) FSA Proportion of arrangements or concessions for arrears falling (23% 2008, 37% 2010, 34% 2011) 20% have to take action if rates rise just 1% (NMG/BoE) +ve FSA ‘cure’ rate increased 41% 2008 to 58% 2011 But indicators suggest risks remain

7. Preventing repossessions 381,000 (2055-8 SEH) been repossessed or sold to avoid financial difficulties, marginal characteristics and debt. 1990s /2000s BHPS/qualitative data shows adverse impacts of repossessions (Netleton/Pevalin) 2008 Policy responses earlier and informed by desire to mitigate adverse consequences of repossessions, but without primary legislation. FSA scrutiny, advice services, pre action protocol, SMI, mortgage rescue, homeowner mortgage support Repossession last resort, but what happens when payments just can’t be met?

8. Are people better off not owning? • “For some people it can be the best option for them to allow their home to be repossessed... “ John Healey 11 Feb 2010

9. Hard decisions and uncertain outcomes • Potential conflicts - who decides that the loan is unsustainable? lenders, borrowers, advisers, local authority? • Qualitative assessments of: balance between affordability, household circumstances, lenders forbearance options and adviser support • No one route to any particular exit . Borrowers often switch between exit pathways (voluntary sale, MRS, voluntary possession, compulsory possession) • BUT outcomes (housing, financial, emotional) often differ by exit route even if borrowers’ circumstances are the same

10. Avoiding repossessions and providing “dignified exits” Flexible tenure (remain in home) – ‘manage housing needs through life cycle’ (Nathaniel Lichfield, 2010) • Down staircasing (shared equity/ownership) ✓ • Sale and Leaseback (private)- FSA closed market for non compliance ✗ • Mortgage Rescue Scheme (public) ✓ Tenure change (move home) • Voluntary repossessions- reflect ‘giving up’ ✗ • Voluntary sales large no. but difficult for some ✓ ✗ • Assisted Voluntary Sales- lenders supporting borrowers to sell ✓ ?

11. Mortgage Rescue Scheme 1/2 Mortgage to rent or mortgage to shared equity 3441 households in priority need (children, ill health, disability etc) retained home 2009-2011 But 38,769 approached LAs, helped engage with lender and debt advice (comms important) Wide support borrowers, lenders, advisors, LAs Small or moderate net cost to government (£45K cash terms, £5K resource terms once financial AND social costs and benefits taken into account)

12. Mortgage rescue scheme 2/2 Used by all lenders, but 70-80% subprime in first year Problems- implementation delays, negative equity, second charges, non standard homes, repairs Funding reduced and uncertain (90% market value, grant rate reduced, funding secure until 2013) No government oversight. People more supportive now of MRS than In 1990s, reappraisal of ownership? “I love where I live. I have supportive neighbours who looked after me when I was ill. It’s a council estate but mostly owned, but I’m not bothered about buying...I don’t miss worrying about it.” (MRS tenant)

13. Spectrum of AVS support to borrowers to help them sell to avoid repossession

14. AVS offered by lenders with higher arrears on book

15. AVS not yet embedded in market Not just vulnerable, 30% market covered but only 345 ‘live cases’ 31/12/10 Lenders : reduce losses, reputational and regulatory benefits, but hard to prove, low take up, moral hazard, costly? Borrowers : breathing space, lack of stigma, LAs more positive about rehousing, anticipated lower shortfall debts, but poor communication, mixed views asset managers and valuations, only address mortgage debt not housing Advisors lack information from lenders

16. Conclusions Mortgage market regulation won’t deal with all risks and need for comprehensive mortgage safety net remains Flexible tenure faces obstacles, funding, inertia in embracing new approaches, operation of homelessness legislation MRS hat scope is there for greater lender contribution Scope for private or even public-private innovation but what levers Flexibility undermined by lack of effectiveness of main option - insecurity private rented sector Flexible tenure some way off being successfully operationalised in wider market.