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Posts Tagged ‘Mortgages’

Mortgage trap that looms for right-to-buy homeowners

Saturday, July 25th, 2009

Survey reveals level of risk facing ex-tenants who purchase their council property. Jamie Elliott reports

People who buy their council property under right-to-buy schemes are far more likely than other homeowners to get into mortgage arrears and risk losing their homes.

A survey of almost 2,000 mortgage holders carried out by the campaign group Consumer Focus between March and May found that right-to-buy homeowners were twice as likely as other households to have had problems paying their mortgage. Nearly one in 10 who had bought their council home got into difficulty in the previous three months.

People who had taken out a mortgage on their council home were also 50% more likely to have other debts secured against it, leaving their property at greater risk of being repossessed.

The findings, given exclusively to The Observer, come as no surprise to Val Blood, of North Yorkshire Housing Advice Resource Project, and duty housing adviser at York county court.

"During the property boom, council tenants were encouraged to take out mortgages they simply couldn't afford," she says. "Companies leafleted whole estates and especially targeted tenants in rent arrears with the promise of paying off what they owed and allowing them to buy their home as well. But if you can't pay your rent, how can you pay a mortgage? Within a year many were facing repossession and often ended up homeless."

Council tenants who bought their homes have also been targeted by companies selling second mortgages.

"Because of the discounts councils offer, these people have equity in their homes as soon as they buy them," says Brian Coulson, housing lawyer at Bury Law Centre. "There has been a lot of hard sell on TV and cold-calling from lenders encouraging right-to-buy homeowners to 'release the equity in your home'. When you're struggling to make ends meet, these offers are hard to resist."

Investing for the future
Glen Mason, 54, felt he was investing in his future when he bought his Cheltenham council flat for £34,000 in 2006. "I thought buying the flat would make my retirement easier," he says.

However, store card and credit card debts soon started to build up, making it difficult for Mason to keep up his mortgage repayments. Barclaycard and some of his other lenders successfully applied for charging orders, securing the money they were owed against Mason's home. Then the recession cost him his agency cleaning job. "I started claiming jobseeker's allowance in January but couldn't get any help from the government with the mortgage repayments until April. By then it was too late."

Homeowners who claim jobseeker's allowance or income support have to wait 13 weeks before they are entitled to help with mortgage interest payments.

Last month a judge granted Mason's mortgage company a possession order, and gave him 28 days to vacate his home.

"I'm still in the flat but am worried the bailiffs will come and change the locks at any minute," says Mason. "What makes me angry is knowing that if I had still been renting from the council, housing benefit would have covered my rent when I lost my job and I would still have a home."

Sale and rent back
Some right-to-buy owners who land in difficulty are tempted by "sale and rent back" schemes, where they sell their property at a discount to a private company with the promise of remaining in it as a tenant. But Denise Rooney of Chas Housing Aid Centre, Kirklees, says many schemes fail to deliver: "We have cases where people are allowed to remain in the home for a much shorter time than they were led to believe or the company they sold their home to goes bust, the debt is sold on and they are evicted."

Right to buy homeowners whose properties are repossessed, including families with children, are not eligible to be rehoused because they are deemed "intentionally homeless". According to the housing charity Shelter, more than 600 households were classified as intentionally homeless due to mortgage arrears in 2008.

"The vast majority were people who had bought their homes under right-to-buy," says Shelter's Bill Rashleigh. "Many got mortgages from sub-prime lenders, which makes them ineligible for help under the government's homeowner mortgage support scheme and often they don't fit the narrow criteria for the mortgage rescue scheme either. So when the worst happens and they are evicted, they find there is no safety net."

A Consumer Focus spokesman says: "The government must ensure people go into right-to-buy with their eyes fully open and provide the level of help and support needed if they get into difficulties. Lenders should also be obliged to lend in a responsible way that takes account of their needs."

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How surveyors have failed us

Friday, July 24th, 2009

Lenders, not buyers, are the true arbiters of how much your property is worth

What does a valuation surveyor actually do? Don't get me wrong, some of my best friends are surveyors. I'm not anti-surveyor, but ...

A report from the Bank of England this week said lenders are struggling to value homes in this market, leading to the break-up and collapse of chains.

How different from the halcyon days of two years ago when the job of a valuation surveyor was little more than establishing the "comparables". A tough task indeed; drop in for a chat at an estate agency and find out how much similar properties have gone for. If that was too strenuous, there was always the actual sold price at the online Land Registry. Indeed, why employ humans? Many lenders found it simpler and cheaper to use "automated valuation models" during the boom. Yet the home buyer still got an inflated bill for a valuation, around £350 on a £200,000 purchase.

With so few sales, it's now impossible to establish comparables. How much is a house worth on a street where nothing has sold for a year? Valuation surveyors are working twice as hard on half the business. Lenders want valuations pushed down, fearful of further price falls. Chains are falling apart after a low valuation prevents buyers obtaining a big-enough mortgage to go ahead.

The Royal Institution of Chartered Surveyors should be taking a long, hard look at itself. How truly professional is the work of its members? Who was valuing buy-to-let flats at such absurdly inflated prices? How does a valuation surveyor get it so wrong? And what sort of action should a professional body take against those members who have so discredited themselves?

The skills needed for the structural element of a home survey will always be essential. But the valuation bit? Clearly the profession was hypnotised into believing markets rise in a straight line.Valuers live by the maxim that the price of a property is the amount someone is willing to pay. This is nonsense: the true price is the amount someone is willing to lend you to buy it.

Value is not in the eye of the beholder, it lies in the spreadsheet of a lender.

Shoots first, ask questions later

It's one of Britain's few growth markets: the green shoots industry. June's figures from the Council of Mortgage Lenders were issued on Tuesday. Within minutes, I'd heard from propertyfinder.com: "Demand from movers and first-time buyers is growing fast; the National Association of Estate Agents: "There are plenty of prospective homebuyers out there"; LSL Property Services (who?): "Gloom is starting to lift"; Marsh & Parsons (again, who?): "Competition is fierce and reflected in rising asking prices". The list could go on and on, because so many people are paid to talk up the property market, come rain or shine.

However, tucked in between these comments was a somewhat more considered analysis from Neil Woodford, of Invesco Perpetual.

Green-shooters look away now. Woodford, who runs more money on behalf of small investors than anyone, says a recovery in the economy could be three to four years away. The consumer boom and the housing market bubble were built on easy access to credit, and created "massive imbalances", he says.

His conclusion? That just as they took a long time to build, they will take a long time to address.

Click on a crook

Last week, as part of a little experiment, this column advised readers to click on the Google "sponsored link" of a dodgy website, www.VFestival2009.org/Tickets, claiming to offer V Festival tickets. Fraud specialist Reg Walker said it cost the crooks running such sites an average of £2.50 each time someone clicks on a link. Our logic was that by constantly clicking on those Google links, we'd make it hideously expensive for fraudsters to fleece us.

It's clear a number of people did indeed click. And the good news is that, for now, this particular site is no more. Walker says it has been removed from the net "on suspicion of fraud". This brings the number of scam ticket sites removed by the Metropolitan Police to around 150 in the last 18 months.

The problem is the people behind these fraudulent sites often simply relaunch with slightly different names. I wonder if the VFestival2009.org people paid their Google bill before the plug was pulled? If Google has been left out of pocket, perhaps it will encourage the search engine not to accept the business of such people in the first place …

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