Arrears & PossessionsIntroduction
The Possessions Register (the Register) is a CML initiative and was established in conjunction with two major credit reference agencies namely, Experian and Equifax. The Register lists properties taken into possession on both a voluntary and involuntary basis by those lenders participating in the scheme, with the dual aim of preventing fraud, over commitment and loss.
Background information In the early 1990s, the mortgage market was depressed due to a number of factors including high interest rates and house prices remaining high in relation to incomes. In turn, the level of arrears and possessions increased and in 1991 the number of properties being taken into possession by lenders rose to 74,000. Reports from CML members suggest that approximately 27% of all possessions are undertaken on a voluntary basis, with borrowers either simply leaving the property or surrendering the keys after consultation with their lender. In these cases, a county court judgment is not registered against the property or the borrower; a similar situation arises when a possession order is granted without a money judgment. Evidence indicated that some borrowers had voluntarily surrendered a property and then approached a different lender for a mortgage on another property, often posing as a first-time buyer. When the subsequent lender undertakes a credit reference search, it would be unaware of the default on the previous mortgage as it would not be registered. Borrowers who seek a further mortgage without disclosing their previous liability are acting fraudulently. Whilst there are no precise figures, it is generally accepted to be more likely that people who have already defaulted on a mortgage are more likely to default on a subsequent one. The Register would alert a subsequent lender to whether a borrower had defaulted on a mortgage in the past which is relevant information, although not conclusive, when deciding whether to grant a mortgage to the borrower. Lenders should review each case on its individual merits, taking into account the borrower’s circumstances at the time of the application and his ability to meet mortgage repayments in the future. Lenders should not operate a blanket ban prohibiting the provision of mortgage finance to persons named on the Register, although it is up to each lender to decide its own lending policies.
Brief overview
On 21 July 2004, the Department of Trade and Industry (DTI) and the Department for Work and Pensions (DWP) published
Tackling over-indebtedness - Action Plan 2004. The 2004 action plan fulfils the commitment in the DTI White Paper
Fair, Clear and Competitive: the Consumer Credit Market in the 21st Century to draw up a strategy to tackle over-indebtedness. The objective is to minimise the cost of over-indebtedness by:
minimising the number of customers who become over-indebted; and
improving the support and processes for those who have fallen into debt.
To achieve this objective, the action plan sets out the following strategic goals:
The development of a national strategy for financial capability.
An increase in the availability of affordable credit for those on low income, through increased activity in the credit union sector, review of the role of the Social Fund and/or the development of alternative models of affordable credit provision.
The introduction of the "stakeholder suite" of financial products to promote savings and asset accumulation.
New legislation to strengthen the credit licensing regime and end unfair selling practices, and new regulations to improve consumer credit advertising and form and content of credit agreements.
Tackling illegal money lenders who prey on the most vulnerable in society.
Improved data sharing to underpin responsible lending decisions through the use of adequate and appropriate credit checks, and the early identification of problems.
In England and Wales, a step change in the availability of free debt advice through greater co-operation within the sector, improved and targeted sign posting, and the development of sustainable funding.
Action to ensure that wherever possible, debt problems and disputes are resolved without the stress and additional expense of court proceedings.
The improvement of insolvency and court provisions, potentially including a non-court based "No Income No Assets" insolvency scheme, an Enforcement Restriction Order, reform of Administration Orders and/or strengthening of repayment schemes.
Improvement in the standard of housing benefit and council tax benefit administration.
The Government will report annually on what has been achieved. Monitoring of individual policy areas is the responsibility of the individual policy leads. However, there will be regular monitoring of levels of over-indebtedness, using an annual survey commissioned by the DTI and a number of other data sources. The survey will report on a number of indicators of over-indebtedness and will include a breakdown of those affected by and the products most commonly associated with problem debt.
Information for BorrowersThere following issue updates are available for Borrowers.
Credit reference agency searches20 October 2005 Provides guidance on the use of searches and leaving "footprints" on consumers' credit files.
Low-cost home-ownership18 October 2005 This tells you about Low-cost Home-ownership, especially shared ownership, Homebuy and the Key Worker Living scheme.
The Right to Buy (RTB)18 October 2005 This paper provides background information on Right to Buy (RTB) and offers an overview of recent changes.
Section 106/Restrictive covenants18 October 2005 This sets out lenders' views on Section 106 agreements and restrictive covenants
Homeswaps18 October 2005 This tells you about the Homeswap schemes being used by a number of local authorities in regeneration areas.
Possessions Register18 October 2005 Provides background and guidance on the CML Possessions Register.
Over-indebtedness18 October 2005 Provides an overview of the Government and industry's initiatives to combat consumer over-indebtedness.
The Mortgage Code18 October 2005 A background note on the history of the Mortgage Code.
Steering Committee on Reciprocity (SCOR)18 October 2005 Provides an overview of SCOR and the Principles of Reciprocity.
Home Buying & SellingThere following issue updates are available for Home buying and selling.
Section 106/Restrictive covenants18 October 2005 This sets out lenders' views on Section 106 agreements and restrictive covenants
Electronic conveyancing18 October 2005 Provides and overview of electronic conveyancing and related issues.
Commonhold18 October 2005 Provides a brief overview of commonhold and related issues.
Home Information Packs18 October 2005 An update on Home Information Packs (HIPs).
Home OwnershipThere following issue updates are available for Home ownership.
Low-cost home-ownership18 October 2005 This tells you about Low-cost Home-ownership, especially shared ownership, Homebuy and the Key Worker Living scheme.
Home Improvement18 October 2005 This update tells you about home improvement loans and the local authority regime for home improvement grants and loans.
The Sustainable Homeownership initiative – an overview18 October 2005 This overview provides a summary of the aims and achievements of the Sustainable Home Ownership (SUSHO) initiative and outlines how it will be develop over the coming years.
Draft Directive on Consumer Credit18 October 2005 This paper provides an overview of the legislative process and key lending implications of the draft Directive on Consumer Credit.
The Right to Buy (RTB)18 October 2005 This paper provides background information on Right to Buy (RTB) and offers an overview of recent changes.
Section 106/Restrictive covenants18 October 2005 This sets out lenders' views on Section 106 agreements and restrictive covenants
Over-indebtedness18 October 2005 Provides an overview of the Government and industry's initiatives to combat consumer over-indebtedness.
Mortgage ProductsThere following issue updates are available for Mortgage products.
Credit reference agency searches20 October 2005 Provides guidance on the use of searches and leaving "footprints" on consumers' credit files.
Buy to let loans18 October 2005 Circumstances in which "Buy to Let" loans might fall within the provisions of the Mortgages: Conduct of Business rules.
Draft Directive on Consumer Credit18 October 2005 This paper provides an overview of the legislative process and key lending implications of the draft Directive on Consumer Credit.
Endowment Mortgages18 October 2005 Provides an overview of endowment mortgage issues.
CAT standards18 October 2005 An explanation of "CAT" standards and what the standard is for mortgage products.
Islamic Home Finance18 October 2005 Background on Islamic Home Finance and an overview of the issues.
APR calculations18 October 2005 The Annual Percentage Rate of Charge (APR) is designed to help consumers compare the cost of similar products. The rate is calculated according to a formula which is set down in the Consumer Credit (Total Charge for Credit, Agreements and Advertisements) (Amendment) Regulations 1999 (SI 1999 No 3177).
The FSA's Comparative information tables18 October 2005 Information about the FSA's comparative tables, which cover a range of financial products including Unit Trust and OEIC ISAs, personal and stakeholder pensions, investment bonds and mortgage and savings endowments.
Self Invested Personal Pension Schemes 18 October 2005 This update provides an overview of forthcoming changes to SIPPS that will allow investment in residential property.
Equity release18 October 2005 This provides an overview of the current position on equity release.
Stamp DutyBrief Overview
Stamp duty has a long history. As a tax it has existed for over 300 years. As this might suggest, it has been an easy and profitable tax to collect. The "take" on residential stamp duty in 2003/04 was £3.8 billion. This figure constitutes an increase of over 900% since 1985/86 and an increase of 360% on the revenue raised from residential stamp duty at the peak of the late 1980s' housing boom.
Following a concerted effort by the residential property industry, the Chancellor announced an increase in the zero rate threshold, from £60,000 to £120,000 in the 2005 Budget. This, along with reduced house price inflation, may reduce the rate of increase in the "take" from residential stamp duty. It is, however, unlikely to stop the year on year increase in revenue the Chancellor enjoys from the payment of stamp duty by home buyers.
Stamp duty is currently based on a "slab" structure as follows.
Less than £120,000 Zero
£120,000 <£250,000 one per cent on entire house price
£250,000 <£500,000 three per cent on entire house price
£500,000+ four per cent on entire house price
The CML has long argued that the "slab" structure creates inefficiencies in the housing market. These were highlighted in a report that we commissioned from the University of Reading to identify how the current system distorts the housing market and to suggest alternatives to counter these problems. The report, entitled Residential Stamp Duty: Time for a change, is attached.
The research concluded that the current system:
Affects first-time buyers much more heavily than existing home-owners. This is particularly true in a booming market where first-time buyers are already constrained;
Places a greater burden on the south of the country, which accounts for some 75% of residential stamp duty revenue but less than 50% of transactions;
Encourages price bunching just below the thresholds where a new and higher rate applies; and
Encourages the development of avoidance strategies such as sellers artificially boosting the value of fixtures and fittings in their properties.
Because of the shortcomings in the current "slab" stamp duty regime, the CML has been pressing the Government to reform the tax. We favour a graduated structure that only charges higher rates of duty on the proportion of the property value above the threshold(s).
We also believe that the revenue generated by residential stamp duty has risen far enough. But it would be difficult to persuade the Chancellor to accept a reduction in the tax revenue generated by stamp duty (indeed, the revenue lost by the recent increase in the zero rate threshold was more than made up for by the removal of more beneficial rates for commercial transactions in disadvantaged areas). We, therefore, suggest that a new graduated structure is designed in such a way that maintains revenue to the Exchequer. However, the new thresholds should be indexed to house price inflation to avoid "fiscal drag" (where households are pulled into higher tax bands through house price inflation alone).
If our proposals were accepted it would mean that the zero rate threshold would increase significantly. As a result, many properties that currently attract stamp duty of one per cent would not be liable at all. This would be of great benefit to first time buyers.
