Increased risk of repossession for borrowers in arrears

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by Lin Freestone

A recent High Court ruling has reaffirmed the statutory right of lenders under a 1925 law to sell a property independently after two mortgage payments have been missed. The property may then be sold without the need to apply for a court order.

In a court case heard by Mr Justice Briggs in October 2008, a lender’s decision was upheld to take control of a buy-to-let property and sell it by auction after the borrower fell into arrears.

It is known that the Financial Services Authority is concerned that lenders in the buy-to-let market are too focused on arrears and too prepared to pursue repossessions. Currently, this lending makes up almost one tenth of the mortgage market.

The Citizens’ Advice Bureau has commented that it would be deeply concerned if lenders used the ruling as a business practice to bypass rules on treating people in arrears fairly.

The ruling seems to fly in the face of the guidelines issued by the Prime Minister that mortgage lenders seize homes as a last resort, and has resulted in calls for the law to be changed as a matter of urgency.

Gordon Brown recently announced that the Civil Justice Council was drawing up new guidance for judges involved in repossession cases, which would require lenders to show a court that they have explored all other alternatives with homeowners before starting repossession proceedings.

The number of families evicted from their homes has risen by 70% over the last year, according to the Financial Services Authority, and it is expected that repossessions will keep rising as the UK falls into a recession.