Research Project

Forestalling Foreclosure: A new role for local authorities
25 November, 2008

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Forestalling Foreclosure: A new role for local authoritiesA new paper published this week argues that in the current economic climate and with repossessions on the rise, local councils should be facilitated to step in and help homeowners at threat. The New Local Government Network (NLGN) has written to the Minister of Justice to ask the Government to draw up new requirements for lenders to work with councils to avert repossessions.

This NLGN paper comes on the same day as the National Association of Estate Agents has revealed just how vulnerable many homeowners are to the threat of negative equity and repossession with more than one in five homes now on the market because their owners cannot afford their mortgage payments. It also coincides with a severe warning from the Council of Mortgage Lenders that repossessions are set to soar to at least 45,000 by the end of the year.
The research sets out how repossessions involve immense stress to all family members, can lead to long-term poverty, poor health and well-being, and can impact on the emotional state of children and their schooling. Financial costs are estimated at £6,000, much of which falls directly or indirectly on local authorities.

In many instances, the report goes on to argue, it would be in the financial interest of the council to step in, averting as it would potential expenditure on alternative housing provisions and other social and economic costs. This could be done through loans, or ‘shared ownership’, ‘shared equity’ or ‘sale and rent back’.

Local authorities are already positioning themselves to respond proactively to the challenges brought by the credit crunch, it finds. Councils are already setting up credit crunch task forces addressing worklessness, housing, child poverty and debt.

There have also been increasing calls for outdated restrictions to be lifted on local authorities as mortgage providers to offer loans and mortgages to help their local housing market.
The NLGN recommends that lenders should be required to speak to their local council and give them the opportunity to intervene with help before any claims are taken to court. It suggests that revisions should be made to the Civil Justice Council’s ‘Pre-court Protocol for Possessions’ to ensure that this happens.

James Hulme, Head of Communications for NLGN, said:

“Rising mortgage rates are putting renewed stress on homeowners, and the latest figures make stark reading. The impact of repossessions on the lives of a family can be very real indeed.”

“This could be a real opportunity for local government to step and help prevent social and economic dislocation in their areas by providing loans or taking a share of the equity of some of these homes.”

“In many cases, this will be a win-win situation – with councils saving money and at the same time helping people stay in their homes. I hope that the Ministry of Justice can pick this theme up as a matter of urgency.”

Publication Date: 25 November 2008