1. The Centre for Housing Policy http://www.york.ac.uk/chp/ Where now for sustainable homeownership? Alison Wallace Centre for Housing Policy University of York CHP Seminar Series 11 May 2011

2. 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/

3. 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/

4. 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/

5. How have we arrived at this position? The Centre for Housing Policy http://www.york.ac.uk/chp/ 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

6. International comparison Impact of downturn mediated through: – Regulation – Legal framework – Employment market – Welfare regime The Centre for Housing Policy http://www.york.ac.uk/chp/

7. Mortgage arrears and possessions The Centre for Housing Policy http://www.york.ac.uk/chp/ Source: CML statistics

8. Geography of arrears The Centre for Housing Policy http://www.york.ac.uk/chp/ Source: Ministry of Justice. Mortgage claims leading to possessions per 1000 households

9. 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/

10. Origins of arrears n = 17,261 Relationship BreakdownIllness Job loss / reduced hours Increased mortgage paymentsBankruptcyOther %22.713.950.53.02.87.2 Source: MRS monitoring returns for local authorities (Wilcox et al., 2010) The Centre for Housing Policy http://www.york.ac.uk/chp/ Positive equity casesNegative equity cases -50% + -5% + -10% + -0% + All -ve 0% + 10% + 25% + 50% + All +ve Tota l No u/s debt25292763824171131194 With u/s debt833564614350343087230 All MRS Cases1038857320613275101218424 Source: Homes and Communities Agency monitoring returns (Wilcox et al., 2010)

11. Lenders’ responses to market conditions Housing MarketMortgage BookGovernment Scrutiny Negative EquityExposure to risky loans Statutory regulation Falling pricesMaturity of mortgage book Judicial scrutiny Potential lossesNo MIG*Direct initiatives Falling transactionsSecuritisation contracts Banking system support Liquidity crisis Mortgage lenders’ arrears recovery practice The Centre for Housing Policy http://www.york.ac.uk/chp/

12. Lender forbearance The Centre for Housing Policy http://www.york.ac.uk/chp/

13. 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/

14. Borrower responses Increase Income Negotiate Lenders Seek adviceVoluntary Exit Labour market constrained New job lower wages Unaware SMI Eligibility SMI limited Amount of SMI may be inadequate MPPI take up low (17%) Little refinancing/ stuck high % loans Unrealistic agreements Time limited agreement Borrower used up forbearance tools Problems accessing advice Quality can be problematic Self- employed/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/

15. 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/

16. 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/

17. Future prospects The Centre for Housing Policy http://www.york.ac.uk/chp/ 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