Trowers & Hamlins

Barring 'reckless' borrowers from the Government’s new Mortgage Rescue scheme could be a legal minefield says Trowers & Hamlins, the City law firm.

The Mortgage Rescue scheme is a key part of the Government’s package to meet the new challenges of the housing market.  This scheme will see Registered Social Landlords (RSLs) being funded to buy part or all of a residential property from an owner to prevent the occupant becoming homeless through a repossession.  The former homeowner’s outgoings would be reduced to something they can afford as a result.

The Government has stated that reckless or irresponsible borrowers will be excluded from this scheme.

Trowers & Hamlins says that any refusals by local authorities, who will police the scheme, to allow financially troubled borrowers to access the scheme could be challenged – even by a judicial review.

Comments Ian Graham, Head of Housing Projects, of Trowers & Hamlins: “We have been big supporters of mortgage rescue initiatives but the next steps in setting up the scheme need to be carefully worked through.”

“It is going to be hard to distinguish between borrowers who have been reckless, feckless or just plain unlucky.”

“Are you reckless because a mortgage provider loaned you what has turned out to be an unaffordable amount or was it the mortgage lender who was reckless?  Are you irresponsible because interest rates have gone up and turned a calculated risk into what, in hindsight, seems a gamble?  These are going to be hard calls to make.”

Ian Graham says that local authorities will need to be given a robust set of guidelines that can be implemented consistently across the country if they are to minimise the risk of challenge.  Ian Graham also says that local authorities will need to get proper logistical and financial support from Central Government to make the scheme work.

Trowers & Hamlins explain some of the advantages of the Mortgage Rescue Scheme:

• Homeowners who are repossessed and have nowhere else to live have to be found emergency accommodation.  That normally takes the form of bed & breakfast or hotel accommodation which is both very expensive and unsuitable especially where there are children involved.
• When a housing market is weak auctioning a home normally results in a low price being achieved which can be reduced further by the auctioneer’s commission.  That may well mean there are insufficient funds to pay off the mortgage lender, let alone leave the homeowner with any surplus cash to spend on alternative accommodation.
• If homeowners lose their property they may well find themselves in the queue for social housing.  RSL’s already have to fund huge development programmes to meet demand for rented accommodation that massively outstrips supply in many areas of the country.
• The scheme, therefore, offers both the social benefits of allowing a former homeowner to stay in their property as well as potential savings to the taxpayer.