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MORTGAGE ARREARS AND REPOSSESSIONS IN SCOTLAND

Chapter Seven: Borrowers Survey

Objectives

7.1 This chapter presents the findings from fifty-three depth interviews with borrowers who had experienced mortgage arrears or repossession. The topics covered during these interviews were developed by means of sixteen unstructured, exploratory interviews with borrowers at varying stages of the arrears and repossession process. These exploratory interviews were used to identify the topics and issues that defined the content of the subsequent semi-structured interviews.

7.2 The aim of this phase of the research was to understand people's perceptions of the process and their experiences of arrears and repossession. The main objectives were to

• complement the surveys of lenders by examining issues from the borrowers' perspective
• help identify what, if anything, could be done to reduce the incidence of repossession. This included testing the potential impact of key aspects of the Mortgage Rights (Scotland) Act 2001.

Method

7.3 Fifty-three depth interviews were conducted with borrowers in arrears and repossession. Twenty-one were already repossessed, five were experiencing, or had experienced, a forced sale, eight had serious arrears and were facing imminent repossession and eighteen had avoided repossession. Summaries of each interview are contained in Annex 7.

7.4 The interviews covered a variety of issues: how borrowers in arrears had made key house-buying decisions, and what advice they had sought and received; their interaction with lenders, courts, advice agencies and who they were advised by at different stages; why some came to an understanding with their lender, whilst others were eventually repossessed; and what outcomes arose from this.

7.5 It proved particularly difficult to contact borrowers and obtain their consent to an interview. This can be attributed to: difficulties in contacting people who have lost their homes; the fact that recruitment was partly conducted through secondary agencies ³¹ and reluctance of many who were approached to talk about the distress associated with incurring debt and losing their homes.

7.6 The most effective recruitment methods were debt advisors (including Local Authority Money Advice Centres), newspaper advertisements (Scotland-wide circulation as well as papers with a local circulation in Glasgow, Ayrshire, Aberdeenshire, Highlands, North Lanarkshire) and writing to borrowers listed in the court records at Aberdeen, Falkirk, Edinburgh and Glasgow.

Survey Specification and respondent recruitment

7.7 It was recognised that recruitment of defaulting borrowers would be problematic. Difficulties would be found both in locating suitable respondents and in securing their agreement to participate. This was recognised in the project brief, which stipulated that a decision to commission this component of the research would only follow a successful development and pilot stage.

7.8 Although the expected difficulties were encountered, this led to adjustments to the original design rather than a decision to abort the survey. The original intention had been to conduct about 100 interviews, which would be structured and carried out by market research interviewers using a fully developed survey instrument. Experience during the development stage indicated that this level of respondent recruitment would not be achievable. In addition, the diversity and complexity of experiences and views elicited in the initial development interviews suggested that

• a more qualitative, open-ended and less fully structured instrument would be better
• it would not be practicable to undertake the survey using market research interviewers. Knowledge of the topic area was required to enable constructive probing, alongside rapport building with respondents to establish trust.

7.9 It was therefore agreed that a reduced number of interviews would be targeted and that these would be conducted by professional research staff. The result would be a more practicable approach with a greater depth of enquiry but reduced capacity to generate quantitative findings. However, even the original approach would not have given any assurance that the respondents were representative of the wider population of people who experience arrears and repossession. Although we must be cautious about generalising from our findings, it is reassuring that the findings were broadly consistent with those reported in the literature on surveys undertaken in England and Wales.

7.10 Despite the reduced numbers the 53 interviews undertaken constituted a rich source and provided a unique and valuable perspective on the process and issues.

7.11 The interviews covered a range of topics: initial house purchase and sources of advice; changes in household circumstances over time and the reasons households got into arrears; the experience of the arrears/repossession process; and the household's attitudes to new legislation. The analysis of the interview material is discussed under the following sections

• respondent characteristics
• pre-house purchase circumstances
• pre-house purchase advice
• post-purchase changes
• arrears
• coping strategies/effects on households
• repossession
• what became of people that were repossessed
• comparison between those recovering from arrears and those experiencing repossession
• views on legislation.

Identification of Interviewees

7.12 The aim was to identify and recruit respondents who were experiencing, or had experienced, arrears and repossession. This would cover those who had been repossessed and those who had avoided it.

7.13 Our aim was therefore to contact

• those whose homes had been repossessed, especially targeting those who had been repossessed within the last five years
• those who had recovered from their mortgage difficulties i.e. managed to come to a settlement with their lender over repayments and avoided repossession. This would include those who had court decrees served but not granted or implemented
• those who were in arrears but not yet facing court action.

7.14 Possible sources of contact are listed below.

• individual household names and addresses are entered on the local authority case returns (called HL1 and HL2 forms) for all homeless applicants. Applications due to mortgage arrears are identifiable. Approaching these through local authorities was not a successful means of contact
• every prospective housing association (HA) tenant completes an application form. This asks for the reasons behind the application and it is possible to identify relevant cases using this source. Scottish Homes operates the SCORE database which contains this information. and identifies which HAs have tenants whose homes had been repossessed. HAs can then match the information from Scottish Homes to their own records and identify tenants' names and addresses. . This approach was not a successful means of contact
• Council Advice agencies and debt advisors and voluntary sector advisors, such as Citizen's Advice Bureaux, Shelter Housing Aid Centres and other organisations dealing with the homeless. They would have contact with borrowers seeking advice about their difficulties. This proved to be the most successful recruitment route
• names and addresses of defenders contained in the court processes. This was the third most successful method but only resulted in 12 completed interviews from over 600 initial letters
• newspaper advertisements asking for people with experience of mortgage arrears or repossession to participate. This was the second most successful method.

7.15 It was recognised from the outset that data protection problems might prevent lenders, housing associations and local authority landlords from identifying customers, tenants, or applicants, who had experienced repossession.

7.16 All these sources were investigated in the pilot, with the exception of lenders' records and newspaper advertisements. CML advised that lenders were unlikely to still have current and accurate contact details for those whose homes were repossessed and that, even if they did, they would be unwilling to provide such information. Advertisements were costly and were seen as a method of last resort, and were not piloted.

Methods of recruitment

7.17 Full details of the pilot are provided in Annex 6. It was felt that no one method was successful enough in itself to generate the required number of interviewees and so it was decided to try the slightly unusual step of advertising for respondents in local and national newspapers. The papers covered are listed in Annex 6.

7.18 Additionally, it was considered helpful to raise the profile of the project by writing an article for HomePoint (part of Scottish Homes) and the Federation of Housing Associations newsletters.

7.19 The most effective method identified was contacts through debt advisors, including Citizens' Advice Bureaux and local authority money advice shops. The methods of contact and the number of recruits achieved from each are listed in Table 7.1.

Table.7.1 Methods of contacting borrowers

7.20 The locations of the interviews were spread across Scotland, as shown in Table 7.2.

Table 7.2 Location of interviewees

Respondent Characteristics

Time period of repossession

7.21 Eighty-four per cent of those who had experienced repossession had done so in the last 5 years (with 26% experiencing repossession in 2001), 8% had experienced this between 5 and 10 years ago and 1% over 10 years ago. Eighty-two per cent had purchased their homes less than 10 years ago.

Demographics

7.22 The characteristics set out below describe the respondent group recruited for the survey. It should not be assumed that they are representative of the equivalent group in the population, because the sample could not be drawn randomly.

7.23 There were 26 female respondents and 27 males. Twenty-two had resident dependent children (defined as those under 17 years of age). The average household size for all respondents was 2.76 and 3.5 for those with children aged sixteen or under.

7.24 Respondents were aged between 22 and 72 years.

Employment status and income

7.25 Household income from employment, benefits or other sources was obtained from 37 interviewees. Fifty four per cent (20) earned under 10,000, 24% (9) earned between 10,000 and 20,000, and 22% (8) earned over 20,000. At the time of house purchase, 80% of our interviewees were employed. At the time of the interview 17% (9) of households had both partners in work, but in 45% (24) of households neither partner was in work, and in 38% (20) of households one partner was working and one not working. This suggests that the households in question have been in economic decline.

Home ownership background

7.26 Previous background in home ownership varied, with the majority coming from a family background of home ownership or at least knowing someone in their sphere of family and friends that owned their own property. Thirty-one borrowers had parents that owned their own home and four had a sibling that owned their own home. Nine were the first in their families to own their own home.

First-time buyers/Right-to-Buy

7.27 Eleven people had bought their homes under the Right-to-Buy scheme (nine of these as first time buyers ³²), thirty-six bought from a private individual and two bought from a private developer. One person (also a first time buyer) bought a property from the bank that he did not know had been previously repossessed.

7.28 Twenty-nine (55%) of the borrowers were first-time buyers. Of these, eight were first generation owner-occupiers with no family history of ownership. Out of the eight, five bought under the Right-to-Buy scheme and one bought a previously repossessed house from a bank.

7.29 Twenty-two borrowers had made their second house purchase. Of these, only one had purchased under the Right-to-Buy scheme and one was the first generation owner-occupier in the family.

7.30 Eleven of twenty-nine first time buyers were under twenty-five years of age and the average purchase price for households in this age range was 33,600. Four of them were over fifty and the average purchase price for them was 19,400 (although there was one outlier of 156,000).

Property and purchase characteristics

7.31 The properties were bought between 1980 and 1999, with thirteen (25%) being purchased between 1980 and 1989 and thirty-nine (74%) between 1990 and 1999. The average length of time in the property before repossession was six years although these borrowers had usually experienced ongoing or intermittent financial difficulties and arrears. At the time of purchase, the properties ranged in value between 800 ³³ and 255,000. The average purchase price was 35,000. Nine properties were bought at a discounted price under the Right-to-Buy scheme.

Mortgage type

7.32 The majority of borrowers (37) had taken out an endowment mortgage.

Pre-house purchase

7.33 People expressed a variety of reasons for buying their house. These were

• it was a long-term investment
• buying was either cheaper than renting, or the cost differentials were considered marginal
• to leave something worthwhile to their children
• they could not obtain council housing and so felt compelled to buy
• either they and/or their partner were at a suitable point in their working lives and that they had enough money/stable job
• providing a better environment (e.g. in terms of safety/ security) for bringing up children
• to give them more security in old age
• they were getting married and/or having a child and needed a bigger property
• they were moving and needed to find somewhere to live quickly and
• they saw it as the only way of obtaining a decent standard of accommodation.

7.34 Prior to house purchase, thirty-nine out of the fifty-three borrowers were either married or living with a partner. Out of these, twenty-two had children. The other thirteen households in the sample were composed of two single parent families and eleven single person households. Eight of the latter had never been married or co-habited and five had experienced a divorce or separation.

7,35 At the time of the interview twenty-two people described themselves as working either full or part-time, and sixteen said their partner was working. Nine households had two partners both in work at the time of interview and 24 households had no employed person (Table 7.3).

Table 7.3 Employment status of interviewee by partner's employment status

Note

1. 1. Work contains the categories 'in paid work or self-employed - fulltime', 'in paid work or self-employed - part time', 'Full-time but on a continual temporary contract'.
2. 2. Not working contains the categories Unemployed and looking for work, Intending to look for work but temporarily ill or injured, Permanently sick/disabled and not able to work, Retired, Looking after home/family full time, At school, In full time education/training, In part-time education/training, Caring for a member of the family that is sick/disabled, Artist with variable income/freelance-sporadic work, In process of setting up own business.

7.36 Twenty respondents said that they had savings at the time of purchase while twenty-three admitted to having outstanding secondary debt (excluding arrears accumulated on existing mortgages).

7.37 It is difficult to ascertain levels of debt at the time of purchase in a reliable fashion. Not only is indebtedness often treated as a sensitive and private issue, ascertaining its 'true' levels is usually complicated by problems of selective recall and perceptions of what counts as debt. What was not in doubt was that respondents experienced levels of debt that exacerbated their inability to meet their mortgage payments. Forty-seven per cent (24) of borrowers admitted to debt at the time of purchase. It was not clear whether the outstanding debt was declared to the lender at the time of purchase. However, it was assumed that outstanding debt would be picked up by checks carried out by lenders. If the debt was not declared on the mortgage application, then it is assumed that the mortgage application would be void. The amounts ranged from 500 to 30,000 as shown in Table 7.4.

Table 7.4 Total amount of outstanding debt at time of purchase

7.38 We must be cautious about the reliability of the evidence on levels of indebtedness and must assume that, in some cases, people under-report or forget levels of indebtedness. Table 7.5 below relates gross household income to the average level of indebtedness.

7.39 It is interesting to consider debt as a percentage of income. This shows that the burden was, in the main, greater on lower income households who already pay proportionally more for their houses. The proportion of debt to income steadily decreases, with a single outlier skewing the top income band (see table below).

Table 7.5 Debt to income ratio

Pre-house Purchase Advice

7.40 People's knowledge of the purchase process varied widely. Extensive probing was required during this part of the interview, especially in cases where people were not first time buyers. In these cases, there were problems distinguishing knowledge at the time of first purchase from how this evolved over time. It seemed that, at the time of purchase, there was usually only a general level of awareness of the mechanics of the process.

7.41 Thirty-one people had obtained formal advice ³⁴ prior to purchase: only four reported that they not taken any advice at this time. Several female respondents claimed that they knew little about sources of advice, as it was their then partners who managed the process for the household.

7.42 When sources of formal advice were given, the most common was an independent financial advisor, followed by a solicitor. Table 7.6 below presents the sources of advice consulted by respondents.

Table 7.6 Source of Formal Advice

Note

Respondents may have given more than one answer and consequently the percentages do not sum to 100.

7.43 The most common professional advisors and the types of advice they provided were

Mortgage Lenders

• Advice on the types of mortgage package available, rates of repayment, term and conditions of mortgage, how much could be borrowed and schedule of repayments.

Solicitors

• Advice on lenders and mortgage packages. Advice on the various do's and don'ts of buying property
• Advice on property and prices, location, state of the property market, what price to offer for a particular property.

Mortgage Brokers and Independent Financial Advisors (IFAs)

• Advice on suitable packages and packages offered by specific lenders. They advised on which lenders would give 100% mortgages and lend to people with bad credit ratings
• when a potential borrower had a poor credit rating, the broker could advise them on non-mainstream lenders
• There was one case where the IFA advised on the offer price and acted as the main agent in the purchase.

7.44 Eighteen people in our sample arranged their mortgage through a broker. In retrospect, many were dissatisfied with the broker service. There were cases where the potential borrowers were not offered a choice of lender or package, possibly because their circumstances did not allow for such options. However, several brokers were associated with a particular bank, and usually offered mortgages with this lender. A related issue was that many interviewees were recommended endowment mortgages. This is interesting as CAB (1993) reported concerns about the high level of endowment mortgages recommended by brokers.

7.45 Some people did not understand the significance of the interest rate, and indeed, virtually no one could remember what the precise figure was. Some people did not understand that as the interest rate fluctuated over time so did the monthly repayment. These are all issues where borrowers wished that they had been given more comprehensive advice and appreciated it more clearly.

7.46 Three borrowers who chose a non-mainstream lender said that they did so because of advice from their mortgage broker. One said that she had no choice because a bad credit rating had limited her choice of lenders.

7.47 These formal sources also provided advice on Mortgage Payment Protection Insurance (MPPI). Unfortunately, detailed information on the advice people were given who did take out MPPI was not collected. This insurance was taken out by twenty-two households, who did so as a means of protecting their payments should they be unable to pay their mortgage due to unemployment, sickness or critical illness. Reasons for not taking out MPPI are given in Table 7.7.

Table 7.7 Reasons given for not taking out MPPI

7.48 Four people reported attempting to make a claim on MPPI. Two were unsuccessful, and two households eventually received payments for a three-month period before it was discontinued on a technicality. The reasons for unsuccessful claims concerned the background factors to the claim (e.g. length and type of employment). This still begs the question of why more respondents with MPPI did not make a claim. A variety of situations existed. One household couldn't afford to keep paying for MPPI when they were in financial difficulty. Others had expected that they were covered and then subsequently discovered that this was not the case. Some people had continued to make payments while they were ineligible to claim (e.g. had moved onto temporary employment). Better guidance on this seems to be needed.

7.49 The interviewees were asked how the advice they were given could have been better. Example of their responses are given below

• "They should have explained about all the different types of mortgages and surveys available"
• "They should have said that the monthly payments could fluctuate"
• "They could have explained the risks of not making payments"
• "They could have told us that there are different sources of information and advice"
• "They should have explained MPPI, what it would and wouldn't cover" and
• "You couldn't get much advice back then, I'm sure it's better now".

7.50 People also received advice from informal sources such as family and friends. This tended to come from people who had already bought their homes and had some experience of the process. Eleven people sought advice from their parents, three from their partners, three from siblings, four from other family members, eight from friends and colleagues, two from newspaper articles and two from people who knew the area they were moving to.

7.51 The advice from these informal sources concerned

• encouragement to buy their home and the rationale of owning your home
• general 'what to do' advice on the practicalities of purchase (e.g. find a lender, find a solicitor, find a home, the type of accommodation to buy, how much to pay on a mortgage and the types of mortgage available)
• specific 'what to do' advice on issues of purchase (e.g. where to buy/ look for suitable property, what lender had a good/bad reputation), and
• information about the local area, including the quality of schools.

7.52 Those in council accommodation who wanted to buy their home under 'Right-to-Buy' were advised by family to find out from the council about

• their rules and procedures for house purchase in terms of the necessary length of tenancy
• the likely value of the house and
• the size of discount granted for their length of tenure.

7.53 Four borrowers started out with a non-mainstream lender whose interest rates were above the average at the time. The reasons for doing so were

"I wanted a one hundred per cent mortgage so had little choice"

"I had no choice, I had a bad credit rating", and

"They were the only ones that would lend to someone my age"

7.54 There were a few cases where the respondents themselves suggested they should not have been given a mortgage. Some said they obtained a mortgage but didn't fully understand the terms and conditions. Several reported being given mortgages outwith their income and felt that they should have received budgeting/money management advice from the lender. It was reported that the lender considered their initial income at the point of house purchase as including overtime payments. When this overtime was withdrawn these people found themselves in difficulty.

7.55 Many of the borrowers complained about access to secondary credit being too easy.

7.56 Despite the prevalence of endowment mortgages and high levels of loan to value, thirty-five borrowers surveyed had not seen house purchase as at all risky. Endowments were a cheaper option and, if affordability was a problem, then it was seen as sensible. It was only with hindsight and the collapse of the equity market that this view changed. Only eight people thought at the time that house purchase was risky and the reasons given for this were

"I felt pushed into it too soon, I felt trapped."

"it was an ex-council property, I was worried I wouldn't be able to sell it again."

"At first I felt as though I was taking on too much."

7.57 The others did not perceive purchase as risky given their employment, familial and partnership circumstances at the time of purchase. Affordability was partly assessed against monthly payments of renting.

post-purchase changes

7.58 Care was taken in constructing detailed time-series portraits of events following purchase. This involved tracking changes in household and income characteristics and in noting critical incidents, such as unemployment and separation, that gave rise to arrears. In individual households there were often a number of factors that had an impact, and these usually seemed to act in combination.

Home improvements

7.59 At the time of purchase, more than half of our sample made major improvements to their property. These included new kitchens, new bathrooms, new/replacement central heating, replacement glazing/double-glazing, home extensions, decoration, and furniture.

7.60 Of the twenty-eight people who made such changes, thirteen paid for them directly from their savings. Twelve used either single or multiple sources of credit. Eight people borrowed from a bank or building society, three from a private finance company, one from a brewery (commercial loan to renovate business premises) and hire purchase. Seven people used more than one source of finance. There is evidence that four respondents had intended to finance these changes prior to purchase by taking on a 100% or more than 100% mortgage. These four also took out additional loans from private finance companies, banks and building societies.

Household size and composition changes

7.61 Household size and composition also changed over time. Ten families had children, and there were two new partnerships. Having children was cited as having a debilitating impact on household finances because female partners had to stop work. Three families lost income following the birth of children because the female partner either stopped working, reduced to part-time or took maternity leave. Seven households reduced as a result of separation/divorce and two following the death of a partner. This too had a negative impact on the financial security of the household, especially when combined with childcare. In some cases it was only after the separation or death of a partner that people discovered their partners' levels of debt.

Employment change

7.62 Forty-five respondents cited changes in employment circumstances as having a critical impact on the financial security of the household. In many cases this involved the loss of the main household income earner's job. Thirteen of the interviewees and nine of their partners experienced redundancy. Three reached retirement age and in one case this resulted in the loss of state disability benefit which significantly reduced the income of the household. The other main reasons given for a change in employment income are

• a cut in hours, including the loss of overtime
• a decrease in wages
• business sequestration
• losing a job through long term illness/disability
• leaving a job either voluntarily or as a result of being sacked.

Additional borrowing

7.63 Twenty-nine borrowers admitted to further borrowing over time, ranging from 500 to 74,500 from banks and private finance companies. Borrowing was used both as a means of offsetting financial difficulties (e.g. repaying existing loans) and as a means of consumption (e.g. purchasing new household items).

7.64 As a result of post-purchase changes in financial circumstances, households often fell behind in the payments of utilities and secondary debts (e.g. council tax, gas, credit). This led to increased debt, although without further borrowing.

7.65 Levels of borrowing varied but half the sample of borrowers took on a level of borrowing that was at either 100% or more than 100% of the value of their homes.

Re-mortgaging

7.66 Sixteen borrowers sought to re-mortgage their properties and fourteen were successful. All except two re-mortgaged with a non-mainstream lender. The lenders chosen to re-mortgage the property with are listed in Table 7.8.

Table 7.8 List of Re-mortgage lenders

Arrears

7.67 After their circumstances changed (e.g. due to unemployment, illness or marital breakdown), borrowers reported arrears and struggles to maintain payments.

7.68 Thirty-four (64%) claimed that they contacted their lender immediately once they knew they were going to be in arrears. The others did not, waiting for the lender to raise the issue.

7.69 Thirty-seven (70%) people said that lenders were narrowly concerned with ensuring that they obtained their money by the easiest means possible. They all thought that their lenders were not flexible enough in offering alternative packages. The lenders' perspective is quite different, and they stressed they would try to be flexible.

7.70 The advice that they were given at this time from their lenders was reported to be

• "To pay as much as possible to cover the arrears". This was not very helpful as they were in arrears precisely because they could not afford to make payments, and
• "To extend an overdraft to cover mortgage payments". This was a short-term solution that only served to compound levels of debt.

7.71 Even from this unrepresentative sample of borrowers, and without lenders themselves being asked what they had done, there was evidence of some flexibility by some lenders in negotiating payment of arrears.

• two people were offered reduced interest-only payments (a source of confusion for one respondent who could not understand why his arrears continued to increase despite these payments. It is not clear why this should have occurred but this type of borrower confusion was commonly encountered during the interviews.)
• one person was able to capitalise their arrears
• three were given an extension of their overdraft to cover arrears
• six people were offered a re-evaluation of their monthly payments
• in four cases the lender sent out a representative of the bank/building society to give debt/money advice.

7.72 Sometimes this flexibility only extended as far as offering respondents ongoing reviews of their situation and circumstances (e.g. their success in obtaining new employment).

7.73 The effectiveness of these approaches was not thought to be high by the borrowers. Payment holidays and waiving of charges were perceived as the most effective approaches.

7.74 Some 'solutions' offered by lenders offered little flexibility. Ten people were asked to make extra payments to clear some arrears.

7.75 Some respondents claimed that their lender showed little interest in their situation. Seven said that the lender offered no help or advice whatsoever and a further four said that the lender began procedures for repossession without any offer of a solution. These accounts have to treated with caution as people's memories are hazy about details and timescales. These procedures for repossession may have come after months of attempted negotiations and sustained inability to meet the terms of the mortgage agreement.

7.76 Many borrowers had a view about what their lender might have done to help reduce their arrears. The most common suggestions were

• face-to-face communication between lender and borrower
• offer mortgage payment breaks
• provision of information, support, debt advice or counselling
• temporarily deferred interest payments or reduced mortgage payments.

7.77 Many of the borrowers (38, 72%), at the point of having arrears and fearing repossession, consulted other sources of advice at this time. The four most common were

• solicitors
• Citizens Advice Bureaux
• Councils' Homeless Officer
• money advice centres.

7.78 Other sources of advice approached by the borrowers were

• family and friends
• local authority councillors
• MSPs, and
• GPs.

7.79 Some of those that had borrowed from a lender called OCWEN (now part of Igroup) also contacted The Mortgage Victims Association.

7.80 There was a range of views concerning the advice proffered by these agencies. Eleven people (21%) thought that they had either not been especially helpful, or had tried to help but could not. The remainder cited the help and advice they had been given. This varied between agencies and examples are given below

• negotiating with the lender or the lender's solicitors
• advice on the bankruptcy process
• help to restructure or consolidate loans
• referral to Money Advice and sources of help, and
• referral to a Housing Association for the Mortgage to Rent/Mortgage Rescue Scheme.

7.81 Much of the advice given from these sources was practical, such as explanations of the credit/ debt management process and advice on how to proceed with the lender. The most useful help came from

• Council Homeless Officers
• Housing Associations offering a Mortgage to Rent/Mortgage Rescue Scheme
• Citizens Advice Bureaux writing to credit companies to restructure loans.

7.82 Not all the advice was seen as constructive. For instance, one interviewee was told by the CAB that they should not contact their lender to say they were unemployed as the lender would just move for repossession faster. Some interviewees found that staff at the CAB tried to be helpful and were very nice, but that the help given was not always effective.

7.83 The Mortgage to Rent/Mortgage Rescue Scheme was offered to three people in the sample, all of whom opted for this facility. Not only could they remain in their homes, they could also apply for Housing Benefit to cover the rent if they became unemployed and they knew that the Housing Benefit would be at a level to cover the rent adequately.

7.84 Arrears did not automatically lead to repossession. Indeed, thirty borrowers managed to clear some or all of their arrears and others felt that they would have been able to recover their previous position if they had been allowed more time to pay. The differences between these groups are spelled out in a later section.

7.85 The timescale between arrears starting and the onset of repossession action ranged from two to twenty-four months. Where twenty-four months was stated, the arrears had been intermittent.

Outcome of mortgage arrears

7.86 In 47 of the 53 cases, the lenders initiated legal steps towards repossession. This did not always lead to repossession. Eighteen borrowers managed to pay off their arrears. Twenty one were repossessed; five because of a default on a secondary loan. A further five were forced to sell their property and eight had arrears and were facing imminent repossession. One did not want to reveal their personal experience of repossession so this interview was of limited use for this topic.

Coping strategies/effects on households

7.87 Incurring mortgage arrears was associated with emotional distress for those involved. For those households that were repossessed the impact was traumatic. This is consistent with evidence from research in England and Wales.

7.88 One individual committed suicide following business failure and the prospect of losing his home. Another had a heart attack and died, which his spouse attributed to the stress of arrears.

7.89 There seemed to be a gender difference in strategies for coping with debt. There were five cases where the male partner had left the home leaving the female partner to cope alone and be the main target of lender actions.

Effects on children

7.90 Many parents were worried about the effect mortgage arrears and repossession had on their children, and the effects on some children emerged during the interviews.

• one child developed ADHD, (Attention Deficit and Hyperactivity Disorder). The father in the family had become violent through stress and frustration with the financial problems he was experiencing
• four children in the same family were moved into temporary council accommodation after repossession. They were now far away from their school and had to take two buses to get there. They did not know where they would be permanently rehoused
• one family had been well off and their children had been in a 'good school'. Post-repossession the children had to attend a 'rough' local authority school. The parents felt their children were not street smart enough for this school, and they were frightened and apprehensive
• there were a number of families who said that they had gone from nice homes in nice areas to 'horrible sink estates'. The new areas had had an adverse effect on children
• in one household, an eighteen year old daughter was regarded as an adult in the homeless unit and the council refused to consider her for re-housing with her family
• illness, death and suicide of a parent due to the stress brought on by their financial problems had untold negative effects on children
• some adult children had to bear the financial responsibility of keeping their elderly, unemployed or ill parents in a home.

Repossession

7.91 Twenty-one interviewees were repossessed, eight were facing imminent repossession, five underwent an enforced sale and eighteen managed to avoid losing their homes by paying at the last minute. Three people were offered the opportunity of abandoning their mortgage and renting the house they previously owned from a housing association.

7.92 Eighteen of the twenty-four borrowers were very dissatisfied with the lender service at the time of repossession. Given the circumstances, this is hardly surprising. They reported the lenders as being unsympathetic, inflexible and difficult. There were complaints about confusion between various departments that resulted in payments not being registered and existing payment arrangements not being recognised. In one case this resulted in two attempts to repossess a property despite the people concerned actually meeting their financial obligations to the lender. Everyone who had experienced repossession felt that the lender was responsible for compounding their debt by adding charges and selling their properties below its market value.

7.93 There were two instances of the household putting themselves into voluntary repossession. This occurred because structural problems had arisen post-purchase and the families involved decided that they would make no more payments because they believed they had been sold a faulty property. They knew they would not be able to sell the properties, so they contacted their lender and instructed them to repossess.

7.94 Two households that had been repossessed had unsuccessfully defended the action at court. One was successful in reversing an eviction that had already begun, because they were able to prove that they had met the agreements set by the lender regarding the payments of arrears. In all other cases, the respondents felt that there was no legal route available to prevent the action being taken. Everyone who had taken legal advice was informed that there was no point in defending the action. In these cases, there was no reference to feeling intimidated by the justice system, as opposed to feeling that it had nothing to offer by way of practical help. Twenty-two people claimed that they did not know that court proceedings had been taken against them. This is difficult to explain, as letters are required to be sent out. Recall errors may account for some of these cases. However, in other cases of partnership break-up, one party may not know of the proceedings as only one letter is sent. The process of going to court can only be successful as a means of getting people to pay if they know that legal action is being taken.

7.95 Several respondents believed that if you had been in a property over ten years, or had paid more than half of the full loan amount over a period of years, then lenders would not be allowed to repossess the property. They believed that in these situations, they had paid enough to the lenders. However, this shows a certain naivety.

What became of people that were repossessed?

7.96 Most of the people who were repossessed eventually moved into local authority or housing association housing, while others had eventually bought another owner-occupier home. Most of those in public-sector housing have been placed in high-rise or low quality housing in areas associated with relatively high levels of deprivation.

7.97 These respondents had approached their council for alternative housing. In some cases, they were told that the council could not arrange to re-house them in short-term temporary accommodation until they became formally homeless. In one case, when the household had sold the property just before repossession, the council said that they could not re-house them as they had made themselves homeless. The only way the council could house them would be if the couple separated or lost their jobs. This interviewee and her husband have therefore separated temporarily until they obtain housing.

7.98 Several borrowers stayed in temporary private accommodation before obtaining local authority housing. One family were put into a homeless unit after repossession which, they complained, was run like a prison. They had a daughter of eighteen who the council refused to consider as part of the family. Instead, she was dealt with as a single homeless adult, which caused great strain on the family. They said they now understood what could drive people to commit suicide.

7.99 Very few households had bought another owner-occupier home. One who did said it took them a long time to make this decision, and they only bought because they could not obtain a decent rented home in their area. A few were in private-rented homes. Again, this tenure was primarily chosen because public-rented sector was not seen as able to provide a home of the quality they sought.

Comparison between those recovering from arrears and those experiencing repossession

7.100 Those that had been in arrears and managed to recover had some common characteristics. A distinguishing feature was that they normally had only a single problem to deal with, rather than the multiple interacting problems that usually featured in repossession cases. This would be a problem (such as unemployment) that could be, and was, resolved within a sufficiently short space of time. Another common feature was the existence of family or friends with sufficient financial resources to help. For those in receipt of income support, other family members now pay the shortfall between the benefit and the mortgage payments. For people in this situation, it was precisely this shortfall that had led to arrears.

7.101 Everyone that recovered reported receiving help from friends and family. Younger people received financial help from parents and siblings and older people from their children. Two borrowers said that their children now paid their mortgage each month.

7.102 Those that recovered had not experienced marital dissolution. All borrowers that had been partnered before arrears occurred still had a partner after they recovered.

7.103 Most of the borrowers that recovered had no other debt. If they did, it was relatively small amounts of debt that family and friends paid off.

7.104 The borrowers who were repossessed also had characteristics in common, mainly that they had multiple problems of a type that take a long time to resolve, if ever. All borrowers in this situation lost their income due to redundancy, reduced income or business sequestration. One borrower was made redundant twice and many could only find temporary positions after redundancy. Almost all struggled to find another job, and some had still not done so.

7.105 Those who did not recover from mortgage arrears were more likely to have experienced problems because of several incidents happening at once. In every case the borrower had experienced at least two, in most cases three and in several cases all of the following

• birth of children resulting in loss of income of the female partner
• redundancy or other job loss
• illness leading to reduced or loss of income
• separation/divorce/death or disappearance of the male partner
• large additional borrowing/re-mortgage.

7.106 In two cases, structural damage was cited as the reason for not being able to sell a property, thereby causing repossession. However, in one of these cases, the family also experienced the birth of a child, loss of female income and reduced income of the male partner because of loss of overtime. These problems led to high additional borrowing. The other family felt that they were poorly advised by their solicitor (who handled the conveyancing aspect of the sale only) and said their financial advisor acted in collusion with the lender to purchase a structurally damaged house. They felt let down, and their response was to return the property to the lender voluntarily.

7.107 Most of the borrowers in this situation experienced marital dissolution because of divorce, separation or death. This was often in conjunction with the male partner losing his employment.

7.108 Several females were left to pay the mortgage alone after the disappearance of their partner. These women all took on full-time employment to try to maintain the home but found that they still could not afford it. Several other families had children, which reduced the earning capacity of the mother. Those that had children often experienced marital dissolution also, which resulted in more single parent families trying to maintain their mortgages.

7.109 All the repossessed borrowers had secondary loans and further borrowing. People who were not repossessed had much lower levels of further borrowing. Several borrowers had re-mortgaged their properties, mainly with non-mainstream lenders, and felt that they had over-stretched themselves financially. Re-mortgaging was used to offset financial difficulties.

views on legislation

7.110 Overall, there was a positive response when presented with an outline of the proposed Mortgage Rights (Scotland) Act 2001. While an overwhelming majority thought that the new legislation would help people in general avoid repossession, most were not so sure about its impact on their own circumstances. Nine of the borrowers who were repossessed did not feel that the new legislation could have helped in their particular situation. The principal reason for this was that their circumstances had deteriorated to such a degree that they would have been unable to recover.

7.111 Reactions to the provisions in the bill allowing for the suspension of the lender's right to take possession of the property and allowing the court to consider household circumstances were positive. Respondents identified a number of potential advantages arising from this. These were

• the delay in enforcement allowing more time for immediate circumstances (e.g. in employment or health) to change for the better
• the courts might take into account the length of time a borrower has owned a property and how much money they had already paid
• the chance to secure alternative accommodation for their families if repossession was unavoidable
• borrowers in arrears could perhaps be given the time to sell their properties themselves and obtain more money for them (the suspension of repossession in the act would allow this)
• the court could be a more sympathetic forum for considering the context and circumstances of their particular case and understanding why their problems had arisen. Householders perceived that lenders were largely concerned with obtaining payments and debt recovery and were not sympathetic to the circumstances of the borrower
• lenders could be forced to offer more assistance in areas such as debt counselling and providing more flexible mortgage repayment schedules, suited to the circumstances of the borrower
• it might make lenders more cautious about instigating court action
• it might make lenders more accountable for their actions by providing a public forum for discussing these and
• it was a potential means of resolving outstanding problem issues such as the transfer of ownership from ex-partners who had left the household and no longer contributed to household finances and the mortgage.

7.112 Some respondent said that the legislation would not help them because they could not afford to challenge lenders through the courts because of their financial situation. An issue is the ease with which borrowers would have recourse to Civil Legal Aid to help with the costs of court action.

7.113 Additional but related perceptions were

• lenders would be able to afford better lawyers and could make a better case than those in arrears
• it would be necessary to ensure that all parties were aware and informed of the action, as some women whose partners had disappeared were left with all the responsibility
• some borrowers said that they would not be able to face going to court as the whole process of repossession was humiliating enough
• that sheriffs might not be understanding and sympathetic.

7.114 Another theme from the interviews was that respondents felt that credit access was far too easy and that they were surprised by the lack of controls. They were alarmed at how easily they themselves had been able to obtain additional credit with little or no concern shown by lenders about existing debt levels and other circumstances. They called for controls on the ease of access to additional credit sources (e.g. bank/ finance company loans, hire purchase).

IMPLICATIONS

7.115 The implications of the findings presented in this chapter will be brought together in the synthesis presented in Chapter 8. The principal points to be taken forward there are:

• The repossessed believed that with more time, understanding and flexibility on the part of the lender, they might have managed to avoid repossession. Some interviewees suggested that better communication, face-to-face contact and debt counselling would have helped. This is an interesting counterpoint to the lenders' perceptions of borrowers in arrears failing to communicate with their lenders.
• Some borrowers said that their problems were compounded by the administrative charges imposed by lenders.
• The principal reason for borrowers having trouble with arrears was loss of earnings. For many, this was the loss of the job of the principal wage earner. Unemployment was often the result of other problems such as illness and bereavement and these circumstances frequently caused further problems such as marital breakdown.
• A problem affecting the majority of borrowers was additional borrowing. An important issue is the extent to which this was a cause of arrears or resulted from wider difficulties. Most seemed to have incurred additional debt to purchase household goods etc, rather than as a measure to avoid mortgage arrears.
• Several borrowers believed they should never have been offered a mortgage in the first place. Reasons for this included lack of financial stability, and financial over-commitment.
• Some borrowers thought the advice they had received at the time of house purchase had been inadequate. Many said they had not understood the mortgage packages and appreciated the risks involved.
• Some respondents thought that the terms of the Mortgage Rights (Scotland) Act 2001 might have given them an opportunity to get back on their feet
• Mortgage Payment Protection Insurance did not seem to be an effective way of protecting household mortgage payments. Those in our sample that had MPPI discovered that they could not make a claim when their circumstances changed. Of those that did make a claim, two were refused and two had limited success.
• ISMI did not help enough. Those in receipt of income support said that the shortfall between the benefit and the payments had left them with arrears.
• Those that had recovered from arrears normally had a single problem, rather than the multiple, interacting problems that usually led to repossession.
• Another common feature of those who recovered was the existence of family or friends with sufficient financial resources to help. It was quite common for this help to be forthcoming when the threat of repossession became formalised by a court order.

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