Where now for sustainable homeownership?
Alison Wallace
Centre for Housing Policy
University of York
CHP Seminar Series 11 May 2011
The Centre for Housing Policy
http://www.york.ac.uk/chp/
Aims of presentation
• Overall aim to present findings from a range of studies
conducted in CHP over last few years in this area
• Overview of arrears and possessions and why the issue still
matters
• How we arrived at position of a greater volume of arrears and
possessions
• What responses have been to limit repossessions during this
recession
• Discuss where we are now as downturn persists
• What the future prospects are for sustainable
homeownership in the UK
The Centre for Housing Policy
http://www.york.ac.uk/chp/
CHP studies
• Stephens et al. (2008) Housing Market Recessions and Sustainable
Homeownership. Round-Up Series. JRF.
• Bramley et al. (2008) Evaluation of the National Mortgage to Rent Scheme.
Scottish Government.
• Ford, J. and Wallace, A. (2009) Uncharted Territory? Managing mortgage
arrears and possessions. Shelter.
• Wilcox et al. (2010) Evaluation of the Mortgage Rescue Scheme and
Homeowners Mortgage Support , CLG.
• [Ford et al (2010) Giving Up Home Ownership A Qualitative Study of Voluntary
Possession and Selling Because of Financial Difficulties CLG.]
• Ford et al. (forthcoming) Evaluation of the 2009 and 2010 changes to Support
for Mortgage Interest, DWP.
• Leaving homeownership through Assisted Voluntary Sales Shelter.
(forthcoming)
The Centre for Housing Policy
http://www.york.ac.uk/chp/
Why arrears and possessions still
matter
•
•
•
•
•
Not as bad as 1990s
Aspirations to own
Supported by govt
Weak support in labour markets
Physical and mental health, educational and
financial consequences of repossession
• Cost effective?
The Centre for Housing Policy
http://www.york.ac.uk/chp/
How have we arrived at this position?
• Crisis trigger international capital
• Weaknesses in UK home ownership identified long
before recession hit
• Mortgage market innovation, retail credit explosion,
• Weakening state safety nets meant entered recession
more exposed than ever (lenders and borrowers)
• Not reprise of 1990s, “messy” as similar prompts but
experienced through prism of explosion in retail
finance
The Centre for Housing Policy
http://www.york.ac.uk/chp/
International comparison
• Impact of downturn
mediated through:
–
–
–
–
The Centre for Housing Policy
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Regulation
Legal framework
Employment market
Welfare regime
Mortgage arrears and possessions
Source: CML statistics
2.00
1.80
1.60
1.40
>3-6 months % all
loans
>6-12 months % % all
loans
>12 months % all
loans
possessions % all
loans
1.20
1.00
0.80
0.60
0.40
0.20
0.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
The Centre for Housing Policy
http://www.york.ac.uk/chp/
Geography of arrears
Source: Ministry of Justice. Mortgage claims leading to possessions per 1000
households
7.0
ENGLAND
6.0
NORTH EAST
NORTH WEST
5.0
YORKSHIRE AND THE
HUMBER
4.0
EAST MIDLANDS
3.0
WEST MIDLANDS
EAST
2.0
LONDON
1.0
SOUTH EAST
0.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
The Centre for Housing Policy
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2009
2010
SOUTH WEST
Characteristics of borrowers in arrears
• SEH 2006/7
• HRP of people who had been repossessed in the past tended
to be:
• Slightly older than other homeowners
• Greater numbers divorced /separated
• Less likely to be in F/T employment and more likely to be
unemployed
• Less likely to be in higher socio-economic groups – so
repossessions across all SEG but lower SEG disproportionately
represented
• More likely to be lone parents
• More likely to be in SE- more homeownership? affordability
constraints?
• No different RTB or 100% LTV
The Centre for Housing Policy
http://www.york.ac.uk/chp/
Origins of arrears
n=
17,261
%
Relationship
Breakdown
Illness
Job loss /
reduced
hours
22.7
13.9
50.5
Increased
mortgage
payments
Bankruptcy
Other
3.0
2.8
7.2
Source: MRS monitoring returns for local authorities (Wilcox et al., 2010)
Positive equity cases
Negative equity cases
-50% -5%
+
+
-10% -0%
+
+
All
-ve
0%
+
10% 25% 50%
+
+
+
Tota
All
l
+ve
No u/s debt
2
5
29
27
63
82
41
7
1
131 194
With u/s debt
8
33
56
46
143
50
34
3
0
87
All MRS Cases
10
38
85
73
206
132
75
10
1
218 424
Source: Homes and Communities Agency monitoring returns (Wilcox et al., 2010)
The Centre for Housing Policy
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230
Lenders’ responses to market
conditions
Housing Market
Mortgage Book
Government Scrutiny
Negative Equity
Exposure to risky
loans
Maturity of mortgage
book
No MIG*
Statutory regulation
Securitisation
contracts
Liquidity crisis
Banking system
support
Falling prices
Potential losses
Falling transactions
Judicial scrutiny
Direct initiatives
Mortgage lenders’ arrears recovery practice
The Centre for Housing Policy
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Lender forbearance
80.00%
A temporary
concession
%
70.00%
60.00%
50.00%
A formal
arrangemen
t%
40.00%
30.00%
20.00%
10.00%
0.00%
2008-Q2 2008-Q3 2008-Q4 2009-Q1 2009-Q2 2009-Q3 2009-Q4 2010-Q1 2010-Q2 2010-Q3 2010-Q4
The Centre for Housing Policy
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No
concession
or
arrangemen
t%
Government responses
• Government initiatives
– Pre-action protocol (PAP) Nov 2008 –no sanctions (CJC*)
– Increased funding of advice services 2008 – threatened
(CLG)
– Mortgage Rescue Scheme (MRS) Jan 2009- less attractive
03/11 (CLG)
– Support for Mortgage Interest (SMI) Jan 2009 – less
generous Oct 2010 (CLG)
– Homeowners Mortgage Support (HMS) April 2009 –
withdrawn (CLG)
– Mortgage Market Review 2009 onwards (FSA)
The Centre for Housing Policy
http://www.york.ac.uk/chp/
Borrower responses
Increase
Income
•Labour market
constrained
•New job lower
wages
•Unaware SMI
•Eligibility SMI
limited
•Amount of SMI
may be
inadequate
•MPPI take up
low (17%)
Negotiate
Lenders
•Little
refinancing/
stuck high %
loans
•Unrealistic
agreements
•Time limited
agreement
•Borrower used
up forbearance
tools
Seek advice
Voluntary Exit
•Problems
accessing
advice
•Quality can be
problematic
•Selfemployed/busin
ess advice
limited
•Housing market
constrained in
many places
•MRS long
delays
•MRS now less
attractive
•MRS time
limited
•Accessibility to
rehousing
The Centre for Housing Policy
http://www.york.ac.uk/chp/
Points of departure between policy
and borrowers’ circumstances
• Regulatory proposals
– Prudential lending cannot mitigate risk from labour market disruption,
relationship breakdown, ill health
• Lender forbearance
– Contingent on market
• Welfare support
– No ‘in-work’ housing allowance for homeowners
– Could be remedied by Universal Credit??
• Consequences of exiting homeownership
– Same circumstances, different exits, different support on rehousing
The Centre for Housing Policy
http://www.york.ac.uk/chp/
Where are we now?
• CML forecast arrears and possessions to rise
– Entrenched cases
• Lenders signalling exhaustion of forbearance,
when is forbearance too long?
• Weakening of state support
• Rising unemployment, bank base rates (when?),
stagnant/falling markets remain, real cuts wages
• Need to avoid reinventing the wheel each time the
market dips
• Unique opportunity to talk about comprehensive safety
net (jointly funded, SHOP, UC?)
The Centre for Housing Policy
http://www.york.ac.uk/chp/
Future prospects
• Will Universal Credit provide ‘in-work’
housing support for homeowners?
• Will /should regulation deliver prudent
mortgage lending?
• Will comprehensive safety net emerge from
welfare reforms?
• Gloomy prospects
• Research ideas
The Centre for Housing Policy
http://www.york.ac.uk/chp/