Mortgage arrears

News

25 August 1990

There was a combination of factors in the last property boom — mortgages being promoted hard by lenders, and first-time buyers (fearful that they might never get a foot on the housing ladder) sometimes overcommitting themselves. The rush to beat the deadline for the ending of dual tax relief on mortgages contributed to this, the NCC says.

“Rising unemployment, marital breakdown and high interest rates have all played an important part in creating today’s problems. But building societies and other lenders should now be asking themselves whether they took enough care when granting mortgages — was it wise to lend three times joint incomes, for instance? We have a feeling that some of the chickens are now coming home to roost. Having helped to create debt problems, lenders have a joint responsibility to help the victims. Funding for specialist advice centres would be a practical step, which would help both lenders and borrowers.”

Current mortgage arrears are probably only the tip of the iceberg, the NCC says. People go to any lengths to keep a roof over their head. When they get behind with the mortgage, it is often a sign that they have many other debts. “One of the problems is that personal savings have dropped sharply — people have invested instead in their homes and, of course, the value of that investment has been dramatically eroded in the past year, as house prices have dropped. This means that some people no longer have other savings to fall back on when they encounter trouble — all their savings eggs have been put into one basket: their home.”

Commenting on the fact that people in the South East have the most problems with mortgage arrears, and also on a Skipton Building Society report which showed a high default rate among professional people, the NCC says that both house prices and mortgage advances in the South East have been higher than elsewhere and claims that recent surveys show that people who live in that area tend to make higher than average use of overdrafts, credits and charge cards and other types of loan.

Nearly one in three people in the South East who were questioned for a Policy Studies Institute survey, for instance, had used an overdraft for credit, compared with less than one in five in Wales.

The NCC report has called for new safeguards to discourage lenders from making loans to people who are already in debt and says that consumers’ basic attitudes to credit seem to have changed, with credit no longer being viewed exclusively as an emergency measure. The council wants more responsible lending, with better checks on people’s ability to repay what they owe, and asks that courts be given the power to write off unpaid debts in cases where it could be proven that lenders had failed to make proper checks.

The council also points out that, although the number of money advice centres — mainly overstretched, voluntary bodies — had increased, there were potentially over 15,000 clients for each independent debt adviser.

This implied that many multiple debtors were still muddling along in financial chaos, without any outside help.

The National Consumer Council report, Credit and debt, which was published earlier this year, warned of a forthcoming steep rise in mortgage arrears and repossessions. This has now happened. Periods of booming property sales and escalating house prices are often followed by an increase in the number of house buyers who find that they have bitten off more than they can chew. There was a combination of factors in the last property boom — mortgages being promoted hard by lenders, and first-time buyers (fearful that they might never get a foot on the housing ladder) sometimes overcommitting themselves. The rush to beat the deadline for the ending of dual tax relief on mortgages contributed to this, the NCC says. “Rising unemployment, marital breakdown and high interest rates have all played an important part in creating today’s problems. But building societies and other lenders should now be asking themselves whether they took enough care when granting mortgages — was it wise to lend three times joint incomes, for instance? We have a feeling that some of the chickens are now coming home to roost. Having helped to create debt problems, lenders have a joint responsibility to help the victims. Funding for specialist advice centres would be a practical step, which would help both lenders and borrowers.” Current mortgage arrears are probably only the tip of the iceberg, the NCC says. People go to any lengths to keep a roof over their head. When they get behind with the mortgage, it is often a sign that they have many other debts. “One of the problems is that personal savings have dropped sharply — people have invested instead in their homes and, of course, the value of that investment has been dramatically eroded in the past year, as house prices have dropped. This means that some people no longer have other savings to fall back on when they encounter trouble — all their savings eggs have been put into one basket: their home.” Commenting on the fact that people in the South East have the most problems with mortgage arrears, and also on a Skipton Building Society report which showed a high default rate among professional people, the NCC says that both house prices and mortgage advances in the South East have been higher than elsewhere and claims that recent surveys show that people who live in that area tend to make higher than average use of overdrafts, credits and charge cards and other types of loan. Nearly one in three people in the South East who were questioned for a Policy Studies Institute survey, for instance, had used an overdraft for credit, compared with less than one in five in Wales. The NCC report has called for new safeguards to discourage lenders from making loans to people who are already in debt and says that consumers’ basic attitudes to credit seem to have changed, with credit no longer being viewed exclusively as an emergency measure. The council wants more responsible lending, with better checks on people’s ability to repay what they owe, and asks that courts be given the power to write off unpaid debts in cases where it could be proven that lenders had failed to make proper checks. The council also points out that, although the number of money advice centres — mainly overstretched, voluntary bodies — had increased, there were potentially over 15,000 clients for each independent debt adviser. This implied that many multiple debtors were still muddling along in financial chaos, without any outside help.