Citizens Advice call for better mortgage regulation

by Richard Kilner

Story link: Citizens Advice call for better mortgage regulation

The Citizens Advice Bureau (CAB) have released a report which shows that a large number of people on low incomes are seeing their homeowning dreams turned to nightmares. Sub-prime mortgages have led to massive debts and individuals with the possibility of losing their homes.

The recent increase in arrears, court cases and repossessions are being blamed on a combination of inadequate advice from brokers, poor lending choices and belligerent arrears management.

Those vulnerable to the pressures are being let down by the rules and financial safety nets that are meant to protect them, the report says.

The report reaches the conclusion that although the government tactic of encouraging those on lower incomes to seek to gain a foothold on the housing ladder is excellent in theory, it is failing in practice and will continue to do so until and unless the difficulties pointed out in the report are rectified.

There has been an 11% year-on-year increase in the number of individuals contacting CAB regarding problems with mortgages or secured loans. In addition to that, up to 770,000 people, according to a NOP GFK survey commissioned by CAB, have missed one mortgage or loan repayment during the course of the last year.

An analysis conducted into the proportion of sub-prime lender involvement in county court possession cases found that the sub-prime lenders were involved in far higher proportion of cases than their market share, sometimes as much as tenfold above.

The majority of people seeking CAB’s assistance with mortgages or secured loans have taken them out from sub-prime lenders with high interest rates. A large majority, 70% had unsecured debts averaging £22,000, and 20% were dependent on means tested benefits.

A large number of lenders are not obeying the FSA’s detailed mortgage rules, and the OFT rules regarding second charge lending are outdated and frequently unenforced.

Surprisingly, second loans of over £25,000 are subject to no regulation whatsoever.

Firm enforcement of current rules are required, according to CAB, in addition to better regulation of brokers.

It also wants rules put into place to ensure that court action takes place only as the last resort and housing benefit for homeowner equivalent to the aid currently available for tenants on low income.