Trowers & Hamlins

The Government, local authorities and mortgage lenders should be looking at how Registered Social Landlords (RSLs) could help to tackle the problem of increasing numbers of repossessions of homes from insolvent homeowners says Trowers & Hamlins the city law firm.

Trowers & Hamlins says that allowing RSLs to acquire residential properties formerly owned by insolvent homeowners would help to prevent a downward spiral in residential property prices that could be caused by lenders putting repossessed properties on an already weak market at fire sale prices.

If repossession can be avoided then the need for local authorities to fund expensive emergency housing for homeless insolvent borrowers is removed.

Trowers & Hamlins explains that once the RSL has purchased the property from the lender they could allow the former homeowner to remain in occupation as an assured tenant paying rent. Finance for the purchase would come from the lender who would replace the defaulting borrower with the strong covenant of an RSL.

With any such plan a key question will be the price at which the property transfers to the RSL and the terms of the loan provided to the RSL to facilitate the purchase.  The lender's duty is to sell at proper value.  The RSL will want to acquire at a price that it can fund through a debt serviced by the rent paid by the former home owner.  That may mean the lender offering "soft" terms to the RSL for that loan.  It could be that some capital subsidy will be required to make the scheme work.  That capital subsidy may be money well spent compared to the cost of repossession both socially and to the tax payer.

According to Trowers & Hamlins, by the end of the last collapse in the UK’s residential property market in the 1980s similar schemes had been pieced together and that all interested parties should revisit plans now to ensure that if a similar programme proves necessary it could be quickly put into action.

Explains Ian Graham, Head of Housing Projects, of Trowers & Hamlins "Homeowners who are repossessed and have nowhere else to go 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 and of course there is the auctioneer’s commission on top of that.  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."

Adds Ian Graham "If homeowners lose their property they may well find themselves in the queue for social housing. RSL’s are already having to fund huge development programmes to meet demand that massively outstrips supply in many areas of the country. So on several counts this would be a pragmatic solution."

"We should be working on putting such schemes in place now.  Government is already looking to help homeowners with such things as free legal advice.  Whilst that is helpful the fact is that legal advice is not going to provide a complete answer."

"There are obvious social benefits of allowing a former homeowner to stay in their property as well as potential savings to the taxpayer."