Exiting Unsustainable Homeownership — understanding current practice and

Exiting Unsustainable Homeownership - understanding current practice and the potential of Assisted Voluntary Sales Alison Wallace, Deborah Quilgars and Janet Ford Centre for Housing Policy 8 September 2011 CML Arrears and Possessions Conference, London.

Overview • Research methods • Context to Assisted Voluntary Sales • The decision to leave home ownership • Lenders support to sell • Borrowers experiences • The way forward?

Context to AVS • Economic recovery weak • Prospect of rising interest rates • Weakening state support to borrowers • Stagnant housing market • New regulatory pressures on lenders • Business pressures on lenders • Large pools of borrowers in entrenched arrears • Large pools borrowers struggling but not yet in arrears • Prompts debates about the management of unsustainable accounts

Research • Funded by NHAS/Shelter. Published mid-late September. • To understand the extent, content and operation of AVS • In-depth telephone interviews with: • 44 borrowers (all exits including use of AVS) • 10 lenders who offered borrowers support to sell • 4 asset managers • 8 advisers • 11 local authority staff • Online survey of lenders (n=27, 80% market)

Deciding to leave- ‘tough call’ • Potential conflicts - who decides that the loan is unsustainable? lenders, borrowers, advisers, local authority? • Qualitative assessments of: balance between affordability, household circumstances, lenders forbearance options and adviser support • No one route to any particular exit. Borrowers often switch between exit pathways (voluntary sale, MRS, voluntary possession, compulsory possession) • BUT outcomes (housing, financial, emotional) often differ by exit route even if borrowers’ circumstances are the same

Lenders’ range of support to sell • No definitive market model of AVS • Spectrum of support • Permitting short sales • Giving time to sell, monitoring sales, checking valuations, and progress • Offer fee assistance for estate agents and solicitors • Appoint estate agents and solicitors, organise valuations (own staff) • Appoint asset management company to handle sale through to completion • Informal and/or tailored to individual to formal contract

AVS Lender Survey • • 12 identified themselves as offering AVS / support to sell covers 30% of market 15 lenders no AVS, 1 will introduce in coming 12 months, 6 unsure, 8 no plans 12 lenders with AVS - 9 handled in house, 3 by asset managers Lenders' with greatest risk more likely to report they operate AVS Mean proportion of accounts in (any) arrears - without AVS 4. 5% - with AVS 19. 8% At 31 December 2010 - 11 lenders had only 345 cases

Industry view of AVS - I • Positive: May (or believed to) reduce losses arising from possession • Treating Customers Fairly, • Avoids trauma of possession for borrowers • Reputational benefits • • “[the potential] is huge if handled correctly. There is absolutely no reason why any property needs to be repossessed. ” Asset Manager • “The biggest selling point is that all cases are managed for the customer and us by [asset manager]. A little bit of the burden is lifted from the customer and they don’t have to go off and find estate agents. We can do that for them and not charge them any fees. Adding shortfall problem, that’s also a big thing. ” Lender

Industry view of AVS-II • Negative • Financial benefits yet to be demonstrated • Low take up/high drop out rate • Borrowers ‘buying time’ • Lack of borrower commitment • Managing expectations (moral hazard) • No demand/costly/ineffective • “If being cynical, some of the reasons they choose not to go down the route is that its formal and requires commitment, and customers know that they can bounce around the [litigation] process, which is certainly a more protracted process [than AVS]” Lender

Borrowers’ views of AVS- I • Positive • • • Overcomes obstacles to selling –costs, ability to cope, awareness Avoids stress, reducing burden, ‘breathing space’ to plan Avoids stigma Better reception from LA s regarding rehousing Anticipated lower shortfall debts • “AVS has given me and my family our life back. We could not have sold on our own as we had no money for the upfront fees. ” • “It felt like we’d been looked after. They have helped with the fees. It’s just meant that we’ve been able to on the surface look like regular people who sell. There is notice on the door saying repossession, it saves the embarrassment. ”

Borrowers views of AVS -II • Negative • Poor communication of AVS offer, staff unclear, lack of written information • AVS would have been welcomed earlier (not last resort? ) • Mixed views on role of asset managers, valuations • Addresses half a problem- mortgage debt but not re-housing • “It didn’t feel like it was my house anymore and I was not able to influence or control the process”. • “A rented property came up and that were it. There was no point, the housing market was poor and I was still going to end up in debt…and I thought what was more important was me and my baby and where we’d be living. ”

Conclusions • • • Borrowers need support to assess whether their loan is unsustainable Borrowers unaware of exit routes available, and pathways out unpredictable with different outcomes. AVS potential to offer mutually beneficial outcomes, but under-developed and not yet embedded into current practices. Difficulty in determining business benefits to lenders Borrowers welcome support offered by AVS, BUT want clearer earlier information and communication to increase trust and persistence

Implications • • • Industry to share good practice and demonstrate benefits More information about services offered to increase awareness and trust Consider incentives to complete AVS • Link to rehousing - rental deposits • Use of shortfall debts Co-ordinate with advice sector and LAs to legitimise AVS With some work, AVS has the potential to offer mutual benefits to lenders and borrowers