During the recession of the early 1990s mortgage arrears rose significantly and there were over 300,000 homes repossessed. Through the late 1990s and up until 2007, the UK economy boomed and house prices rose significantly. Hand in hand with this was a rise in the size of mortgages. Many people chose to taking large mortgages so they could get on to the property ladder. Others remortgaged their property to release equity to fund their lifestyles thus increasing the size of their mortgage in that way.
With the onset of the recession in 2008, experts predicted that the number of home repossessions would again significantly increase. In early 2009, the prediction for the number of repossessions during the year was 75,000. So far, this figure has not been reached. One of the main reasons for this is the bank of England policy of low interest rates. Many home owners’ mortgage payments have fallen significantly meaning that they have been able to keep up with their payments even if household incomes have fallen.
Mortgage Pre Action Protocol aimed at reducing Home Repossessions
However, as employers continue to make cuts to survive in difficult market conditions, the worry is that the number of individuals who are forced into shorter working weeks and unemployment will continue to increase. As incomes suffer in this way, pressure will inevitably be put on mortgage payments therefore leading to an increase in potential home repossessions.
In order to try and minimise the number of people who are at risk of losing their home through repossession, the government has put in place provisions so that it is more difficult for a mortgage lender to obtain a repossession order. These provisions are known as the mortgage pre-action protocol. The protocol is intended to ensure that the lender acts reasonably in any matter concerning the resolution of mortgage arrears. As the name suggests, the idea is to encourage more “pre-action” contact between the lender and the borrower in an effort to seek an amicable agreement between the parties.
How should the Mortgage Pre Action Protocol help protect your Home?
When a borrower falls into arrears, the protocol says that the lender should help the borrower in a number of ways before a repossession order is applied for:
1. Explore options to reduce monthly costs
First and foremost, the lender is expected to work with the borrower to explore all options of reducing the monthly cost of the mortgage. These may include extending the term of the mortgage, changing the type of mortgage, deferring payment of interest, capitalising the arrears or a combination of these. The lender is also expected to consider a request to change the date of monthly payments.
2. The lender must respond promptly to a payment proposal from the borrower
The borrower and lender should discuss the reasons for the arrears and whether their cause is long term or temporary and then agree a way forward accordingly.
3. Repossession procedings postponed
The lender should consider postponing repossession proceedings if the borrower has submitted a claim under a mortgage protection policy or put their property on the market. Borrowers selling their property must demonstrate that reasonable steps are being taken to market the property at an appropriate price in accordance to reasonable professional advice.
Is the Mortgage Pre Action Protocol Working?
Ultimately, the mortgage pre-action protocol is designed to ensure that lenders only take action to repossess a property as an absolute last resort given all other options to maintain the mortgage have been exhausted. If a lender does decide to start a repossession claim, it will need to be prepared to explain its reasons to the court. If lenders can not show that they have gone that extra mile in trying to avoid repossession, it is far less likely that the courts will accept the application for the repossession order.
At this point, it is unclear what real effect the pre-action protocol has had in preventing repossession proceedings. However, as the recession continues to effect employment and income levels, the number of people facing difficulties paying their mortgage is certain to grow. The effectiveness of the protocol will therefore be tested in the coming six to twelve months.
