Saturday, 6 December 2008

House rental and repossessions

Today's Moneybox program on Radio 4 had a very interesting discussion today about the situation with house repossessions and rental in the UK. If you wish to listen to the broadcast, you can hear it about 15 minutes on BBC Listen Again - The link to the program will only survive for seven days, so there is an additional textual report on the BBC website.

My partner and I are renting a house on a 18-month contract, and had assumed that, as long as we continued to pay our rent and kept the house in order, we were safe for the period of that tenancy. However, apparently, if our landlord were to default on her mortgage payments, we could (and probably would) be thrown out of the house, regardless of the contract. The problem is that the letting contract is with our landlord, not with the lender, and so the contract is void once the lender repossesses.

Neither of us were aware of this, and it came as a shock. Our assumption (perhaps naively) was that we would be protected in this situation. That is not the case. Fortunately, I do not think that this is likely to happen with the house that we are currently in. However, the little nagging and annoying kernel of doubt is now firmly planted within my mind.

As house prices are decreasing, most lenders want to sell the houses after repossession, to get as much money as they can, whilst they can, and to prevent them from having to manage a vast portfolio of property. Selling the property means that the tenants are evicted. The current economic problems means that this is becoming more common, especially with buy-to-let mortgages.

In some cases the tenants are not receiving any notice, and the first thing they know about the situation is when the bailiffs turn up at their door. In others, they have only a precious few days in which to find somewhere else to live and move.

There are alternatives, however. A receiver of rent can be appointed by the bank, allowing the tenant to stay on for the length of their tenancy. Some banks appear to be doing this in some cases, although it does not sound like it is common. Additionally, the lenders cannot tell the tenants anything about the proceedings, as their relationship is with the landlord, not the tenants.

The lenders are supposed to send a letter out to the tenants, saying that the house is going to be repossessed. But this relies on the lender knowing that the house is being let out (the landlord may not have told them). Also, as the banks may not know who the tenants are, the letter may be addressed to 'the householder'. This is a phrase often used by junk mail, letters that are not universally opened.

This Government is spending an awful amount of money to help out homeowners. However, it appears that they are not willing to do much to help people who rent. It is interesting that the headline for the story above 'Change due for buy-to-let tenants' describes a move to make mortgage lenders give tenants notice seven weeks before repossession - an increase from two weeks at the moment. But, as mentioned above, the current system of two weeks' notice does not work. This needs bold action, not tinkering at the edges.

There are several things that could happen. The Government could force banks to use receivers of rent in any case where the tenant has an appreciable time left on their contract. This would likely be unpopular with banks, and that might also have a positive side - in future they may be more reticent in giving out buy-to-let mortgages if they knew that they may have to deal with tenants if the property is repossessed. It would be slightly harder to get buy-to-let mortgages, but, given recent experience, that would hardly be a bad thing.

A similar approach would be an alteration that meant when a lender repossesses, the contract is taken over by the lender, and they need to see it through to the end. This would be more direct than appointing receivers of rents, and would place a burden on the banks. Again, this may have the (beneficial?) effect of making banks more careful in giving out buy-to-let mortgages.

Unfortunately, I do not think that this Government will do anything about this. Although their moves to help out mortgage holders may reduce this problem slightly - by potentially reducing the number of repossessions - it does seem to be rewarding the people who have helped to cause this problem by overextending themselves. People like us, who have been saving in the seemingly vain hope of getting on the housing ladder, are finding our savings getting virtually no interest.

People who rent are just as valuable to society as homeowners, yet we are being treated as second-class citizens. It is important that nobody should be unnecessarily thrown out of their homes, whether tenants or homeowners. Our rights are just as important as theirs.

The stories from the public on the BBC 'Have Your Say' section on this topic are interesting and, in some cases, tragic. These are people that the Government should be directly helping - people who are, on the whole, blameless, and who have few, if any, rights in this matter. Unfortunately, I hold out little hope that the Government will do anything.

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