CHAPTER ELEVEN SYNTHESIS OF FINDINGS
11.1 The UK mortgage system is relatively liberal, enabling more access to a wider range of lending products but allowing much more risk. Governments adopt a range of approaches to risk management, with government guarantees most common, but the UK is also exceptional in seeking to rely to a high degree on private insurance (although in practice takeup remains low). Arrears and possessions appear to be higher in UK than in some comparable countries, and they are clearly much higher for non-prime lending.
11.2 It is hard to find any directly comparable schemes to Mortgage to Rent ( MTR) in other countries. The recent set of measures initiated by the Housing and Economic Recovery Act in the United States will be worth monitoring, but it is too soon to judge the results of a scheme that is only just beginning. The nearest existing comparable schemes differ in their context, aims and mechanisms used, for example operating either as state-backed insurance against loss of income or as state guarantees of mortgages. The schemes that operate in New South Wales and in Flanders operate primarily to keep people in owner occupation. The insurance-based schemes in Flanders and the Netherlands tend to have problems of low coverage. The social assistance schemes that operate in New South Wales and Scotland mean that all eligible households are in principle covered, but they have no right to assistance. It is difficult to compare the costs of the schemes, but the Scottish scheme does appear to require a high level of subsidy per case, although the social sector also acquires an asset.
11.3 The review suggests that home-ownership in Scotland differs in some respects from the rest of the UK. The most important differences are the less mature character of the tenure arising from its recent rapid growth and, in part arising from this, the maintained use of the state safety net (compared with the rest of Great Britain).
11.4 Nonetheless, the same issues arise in Scotland as in the rest of the UK. There are concerns about the adequacy of existing state and private safety nets, although these are subject to change, and statutory mortgage regulation has had little impact. The Mortgage Rights Act has been a clear benefit in Scotland and has brought the legal system more in line with England and Wales, making recovery strategies more practical. Nonetheless, the MTR scheme clearly fills one important gap in the safety net coverage.
11.5 MTR is intended to prevent homelessness arising from mortgage problems and repossessions and, as the research shows, it does do this to some extent. However, the scheme does not appear to feature strongly in many local homelessness strategies, probably because the number and proportion of homeless applications relating to mortgage problems and repossessions in Scotland remain relatively small.
Role and Objectives
11.6 The MTR scheme objectives focus on homeowners at serious risk of losing their home and thereby preventing one (not very common) cause of homelessness. It can be seen as part of a broader strategy, alongside other legislation, to improve security in the housing market, but also as a component of strategy to counter financial exclusion and poverty-debt problems.
11.7 The particular model used emphasises social housing as the solution and serves to increase the stock and quality of social housing, although this is not necessarily the only way assistance could be provided. For example, there could be more emphasis on supporting continued ownership, possibly through shared equity 30, or on supporting solutions in the private rental sector.
11.8 Stakeholders and applicants are broadly positive about the objectives and the criteria/targeting of MTR. The two main areas provoking most critical comment are the requirement for legal action to be being taken (or immediately threatened), and the 'below average' property value test.
11.9 MTR is intended to be a last resort for homeowners and the eligibility criteria reflect this, for example implying that people who could 'trade down' should do so. This last resort approach may however provoke some tensions around timing, where it tends to conflict with a prevention approach. There is a case for (a) making existing flexibilities more apparent to potential clients and advisers, and possibly (b) formally widening the criteria, particularly in relation to value limits and the timing of initial application.
11.10 A minority of applicants believe their personal circumstances have not been taken into account, and there will always be some disagreement where outcomes are negative. To ensure that the decision-making and appeals process is robust, there could be periodic external reviews of case files and appeal decisions, and/or a standing Appeals panel with external membership.
Demand, Takeup and Outcomes
Level of Activity
11.11 The MTR scheme has built up to a level of about 400 applications per year, of which just under half successfully convert into settled cases, the majority of the remainder being ineligible. The geographical pattern shows uneven take-up between localities which can only partly be explained by demographics of population at risk, and suggests varying promotion and knowledge of the scheme.
11.12 Eligible demand tends to be strong from poorer areas which formerly had a lot of social housing, including former RTB properties, and is generally greater in urban central Scotland. This fits with survey data showing a higher incidence of financial difficulty among homeowners in these areas.
11.13 MTR cases may in many instances avert homelessness, however mortgage default only represents a small fraction of total homeless acceptances (1.5%). Our best estimate is that MTR may, in helping 140 households per year to remain in their homes, have reduced repossessions by 8% in Scotland. This could represent up to a third of the number of households rehoused as homeless due to mortgage possession in Scotland.
11.14 People are not currently turned away from the scheme through lack of money for grants, but many are ineligible and in many cases a social landlord cannot be found (which we discuss further below)
Profile of households and dwellings
11.15 Half of MTR applicants are middle-aged (45-59) or older, and relatively few are younger (under 35). This age profile is different from the general picture of owner occupiers with financial difficulty, but is in part explained by the targeting on lower priced dwellings. Household size profiles are similar to mortgaged owners generally, but the proportion of single parents is higher. Nearly half are on low income, likely to require Housing Benefit, although this proportion is falling. MTR clients are slightly more likely to have a limiting disability or illness and the proportion of BME households also appears higher than expected.
11.16 MTR properties are relatively low value and many are ex- RTB homes. Many households had been in these homes for a long time and they are generally attached to their home and locality. Typical MTR properties are 2-or 3-bedroom, including many flats and terraced houses. More than half were built in the period 1950-75, with few pre-1919 or recently built.
11.17 The quality profile of MTR properties is generally reasonable and in line with what would be expected given its age and background. Many are ex- RTB and as such social landlords tend to regard these as a familiar and valued 'product'. Quoted repair costs on average tended to lie within the £6,000 limit.
Problems and alternatives
11.18 Half of households interviewed had experienced some job loss, yet only a third had MPPI and a quarter of these had difficulties claiming, while only 1 in 6 received ISMI. Thus, the well-known limitations of these safety nets contributed to the demand for MTR.
11.19 The most popular alternative considered was seeking social housing, followed by selling and then re-mortgaging. MTR was preferred by most applicants, chiefly because it enabled them to stay in the same property with security, but also in many cases because they saw no alternative. Private sale-and-leaseback was considered by some but generally seen as unattractive financially and insecure. The most common reasons for not trading down were financial difficulties/arrears, lack of cheaper property, and low income.
11.20 There is some suggestion from the household interviews that the range of options considered was not always very comprehensive. It may be that, while some advice agencies may not promote MTR actively, others may promote it strongly to the exclusion of considering other options, possibly because of the difficulty of negotiating agreement in complex cases.
11.21 Most settled cases felt relieved to have gone through MTR, although a minority had some regrets, with hindsight, that they had not sold on the open market.
Ineligibility and withdrawal
11.22 Since only around half the number of applications submitted actually settle the reasons for ineligibility or withdrawal are important. 40% of non-settled cases had reasons which were broadly favourable, at least in the short term. 15% fall into intermediate categories. However, 45% of these cases are more problematic, including 19% for whom no social landlord could be found 31, 13% where lenders or inhibitors are unwilling to cooperate or accept a shortfall, 6% already evicted, and a range of other less common issues. Some cases which are withdrawn may reapply later.
11.23 Case files confirm this picture, highlighting the problems of securing agreement where there is a potential shortfall and/or multiple lenders. Withdrawn cases have most often tried to sell on the open market. Ineligibility most often arises where prices exceed the local threshold, or because there is no immediate legal threat, or because of repair costs.
11.24 Unsuccessful applicants continue to experience affordability problems in a third of cases, while others are maintaining their position but may not be in a position to pay off their mortgages fully.
11.25 Half of settled households said they would have been homeless or repossessed without MTR, while others would have had to sell and faced some housing difficulties. Some unsuccessful applicants are also likely to end up homeless. However, not all homeless applications end up being rehoused, and many applicants would not have had priority need through having children (although this situation is due to change).
Operation of the Scheme
11.26 There are some limitations in the evidence base from the MTR administration system due to duplication involving different systems, some design limitations, lack of information being collected on key factors like income, and failure to use standard codes for key variables such as reason for ineligibility or withdrawal. Improvements to this system would enable more routine monitoring and analysis of information about scheme demands and outcomes.
Awareness, information and communication
11.27 The general public is not well aware of MTR and in most cases applicants have it suggested to them by advisers, lenders or social landlords. Information about the MTR scheme should be made more widely available in the context of improved information about the need to seek advice early in cases of debt.
11.28 Most applicants found the application process easy, and both applicants and stakeholders are generally complementary of the way the central MTR team operates. The centralised administration is seen as advantageous. While communication is generally viewed positively, a number of suggestions are made as to how information provided could be improved, particularly with stakeholders about the progress of applications. Applicants were seeking more information on the progress of their case, information required from them and likely equity.
11.29 One or two people had not expected to fail in their application and thought the likelihood of success could be clearer. Providing realistic advance information to applicants may inform their decision about whether to apply or not, for example telling applicants 'we often cannot find a landlord and these are the most common reasons why'. This information could include numbers and a reminder of the key eligibility filters.
Stages, timescales and delays
11.30 Cases generally go through a common sequence of stages, although the complexity of these varies between cases. Some confusion is associated with the requirement that legal action should be in process or imminent. Often the MTR team have to go back to applicants to get additional information or signatures, and delays occur if material issues such as secondary loans or home alterations are not initially disclosed on the application form.
11.31 Actual timescales for the process typically exceed targets by a considerable margin, with the average settled case taking 27 weeks. The time is typically evenly divided between the stages before and after the offer letter. However, for some cases the time available is too short to prevent eviction.
11.32 Although the MTR team commission a Scheme 2 survey, most social landlords carry out their own survey to assess repair cost and regard this as an essential element of risk management. However, some other stakeholders including solicitors are critical of this as creating a further delay, and suggest reliance on Scheme 2 alone (with exceptions). Some of these delays might be addressed by streamlining procedures within landlord organisations. A framework agreement approach to the main participating landlords in each area might help with this issue as well as the problems of delay and of finding landlords.
11.33 Multiple securities and inhibitions are a further major cause of delay, and further delay often leads to increasing levels of arrears.
Profile of lenders and Debt
11.34 The main lenders most commonly represented among MTR cases are leading high street banks in Scotland. However, also quite important is a group of less well-known names, including sub-prime and specialist mortgage lenders and general consumer finance companies. Major mutuals are less significantly represented. Lenders with relatively large secured loans tend to be a rather different group, with even more emphasis on sub-prime, specialist and consumer finance companies.
11.35 Multiple, secondary debts are very common, are widely cited as the immediate cause of problems, and then create additional problems in attempting to resolve the situation, whether through MTR or otherwise. Secondary lenders are criticised for irresponsible lending and an over-readiness to seek possession. However, secondary debts also include public authorities (Council Tax). In addition, many households can be seen as having overstretched themselves in taking on secondary debt, for a wide range of purposes, even though a loss of income may have triggered the crisis.
11.36 Cases of multiple secured debts were difficult to negotiate and advisers had to work hard with the MTR team to engage all the lenders, particularly the secondary lenders. The attitudes and practices of lenders appear to vary a great deal, despite general support for MTR from CML. There was some evidence of hardening attitudes among lenders, but also of cases becoming more complex.
11.37 Bankruptcy may be becoming more common, with a new 'low income low assets' route often being recommended by advisers. This generally requires the sale of the home, with the MTR route being seen as particularly appropriate where values are low and there are children present.
11.38 Citizens Advice Bureaux are by far the most common source of advice used by MTR clients, although a wide variety of others are used by smaller numbers. Most applicants contact debt advice agencies before they apply to MTR, and some effectively communicate mainly through the advisers rather than through the MTR team. In this sense the advisers are the key front-line professionals working with these households.
11.39 On the whole, respondents felt the advice and information they received was very helpful. There were, however, a few cases where respondents believed information or advice was incorrect or unhelpful. This indicates the need for more training among money and debt advisers on legislation, as well as processes for mediating between clients and lenders. There may also be a need for more detailed guidance to advisers from MTR to ensure consistency in how MTR is presented alongside other options.
Dealing with Lenders
11.40 There is considerable evidence of 'self denial' by clients about the extent of their financial problems, including communication problems between partners. This leads to some failing to contact their lenders until it is too late to obtain a helpful response, whereas those who approached their lenders early generally got a more sympathetic treatment.
11.41 About a third of cases described lenders as unhelpful. A fifth of cases had no arrears on the main mortgage, with the threat arising from secondary loans. The debt retrieval practices of secondary lenders tended to be far more aggressive.
11.42 Sub-prime lenders are not uniformly a problem for MTR applicants; in some instances they are the solution rather than the problem, offering re-mortgaging options to owners with no other options. It is secondary lenders which appear to be more generally the problem group, although some mainstream lenders also display an unwillingness to be flexible. The evidence from this study suggests that the differential regulatory regime applying to secondary lending may need to be addressed if the kind of problems increasingly presenting to the MTR scheme are to be better prevented, although it is noted that this regime has been subject to recent change.
11.43 More than 80 social landlords have been involved with MTR so far, but a smaller number are more regularly active and account for a majority of cases. Most of these are housing associations, although a few local authorities have been active.
11.44 Finding landlords for MTR cases is often a challenge. Reasons for landlords declining MTR purchases range from common problems of securing access to undertake surveys, problems of repairs costs in excess of the £6,000 subsidy limit, non-conventional build methods/defects, unsuitable occupier 'improvements', common repair problems in flats, and in some cases a reluctance to take on a 'scattered' portfolio or operate outside a normal 'patch'. Some local authorities and small associations had or foresaw financial limitations on participation.
Rents and sustainability
11.45 Rents are invariably based on existing social landlord rental policies. There was little support for market rents, although some larger associations could contemplate lower grant rates with charging a somewhat higher rent for MTR.
11.46 Most MTR tenants feel able to pay their rent without difficulty, with 2 in 5 receiving HB assistance. A significant minority of these tenants however still experience financial difficulties with payments and debts. From the landlords' perspective, there was also some worrying evidence of a high incidence of arrears for this group, although it is unclear how widespread this experience was. Ongoing management and maintenance was seen as generally unproblematic.
11.47 Although the average recorded repair cost is within the £6,000 limit, there are clearly very significant repairs outstanding on some properties which make them very unattractive options for landlords. The types of repairs needed which lead to landlord refusal could be flagged up in the guidance to applicants to help manage expectations. There were also some discrepancies inevitably between MTR and landlord survey cost estimates.
11.48 Landlords see the treatment of repairs as generally fair, but not all occupiers do, and some other stakeholders also raised concerns. Respondents who have had very bad experiences felt that the Scottish Government should have more of an 'aftercare' role so people could appeal against unreasonable repair costs or complain about incomplete repairs or sub-standard work. Repair costs are a very emotive issue for some applicants and an operational area that needs to be reviewed.
11.49 In addition, or as an alternative, the MTR approach to repairs might be simplified, perhaps in the context of a framework agreement with landlords, using a fixed/capped allowance based on the Scheme 2 survey (possibly with scope for exceptions). Part of the motive here would also be to speed the process and facilitate finding landlords.
Costs, Value for Money and Alternatives
Costs and benefits
11.50 MTR cost £9.4m in 2007/08, comparable with some other smaller programmes in the housing and regeneration field. Widening the scheme's scope and responding to the current market crash could both increase costs. Although property values are modest and correspond with local market conditions, these have increased. The average subsidy cost per settled case is relatively high, similar to the cost of new LCHO units although below the cost of new social units. This raises questions about the value of benefits, but we can only make crude estimates for some of these items.
11.51 Most settled MTR cases represent good outcomes for households, with only minorities expressing regret or displaying signs of unsustainability. About half of these cases may represent a homeless case averted, while some of the remaining applicants, although not facing homelessness, may still benefit by being able to maintain social and community networks.
11.52 In view of the cost consideration, there is a case for looking at a range of other possible options to meet the same objectives, possibly entailing less up-front cost. In reviewing these regard should be had to the potential role of these schemes as forms of 'insurance' and also the wider issues of credit, debt, and financial regulation which are at issue.
11.53 Some of the adverse outcomes perceived by some households are exacerbated by delays. Clear guidance about how applicants can limit delays could appear in the guidance (e.g. you need to do X, Y and Z to make the application run smoothly). At the same time, guidance should ensure that applicants do not have unrealistic expectations. Delay can also be reduced through streamlined administration and the use of framework agreements.
Shared Equity Scheme
11.54 A Mortgage-to-Shared Equity ( MTSE) scheme could provide similar benefits to MTR, but at lower subsidy cost, and could be both appropriate and attractive to some home-owners at risk, as well as providing a basis for somewhat wider eligibility. However, it is clear that most current MTR clients could not really avail themselves of such an option, owing to a combination of low income, low/negative equity, severity of debts, credit history and mortgage prospects. MTSE could suit a minority of current MTR clients, but would make more sense as a way of widening the scope of the scheme. MTSE could be based on the SG's LIFT shared equity schemes, but would need to offer more flexibility.
Other options for developing MTR
11.55 There is some support for widening eligibility in terms of how close to repossession households are, and in terms of raising value limits, although this would have some implications for cost and coverage.
11.56 Current national administration arrangements are appropriate, as are time targets, although more could be done to speed up processes in many cases (so also reducing debt and shortfalls). Guidance to participants on what they should do, reducing the number of landlords approached, reliance on Scheme 2 Surveys, delegation within landlord organisations, and framework agreements with landlords and voluntary code for lenders could all contribute to this goal.
11.57 Subsidies and allowances are seen as appropriate by providers, as are the charging of normal social rents. However, we would argue that from a broader public policy perspective the subsidy costs are high and therefore alternative models entailing higher (intermediate) rents and possibly use of private investment (e.g. leasing) should be explored. Intermediate rents could be provided as an alternative to MTSE for some households with sufficient income but unable or unwilling to remain as owners. However, full market rent based MTR would not be a satisfactory substitute for MTR, although there may also be a case for regulating private sale and leaseback.
11.58 The scheme is reasonably well-known by advisers and lenders, but not so well across all local authorities and not at all by the public. Better publicity and promotion would be appropriate but would increase demand.
11.59 MTR is achieving its aims in a way which is pretty satisfactory for most stakeholders and households affected. However, the overall scale of its contribution to preventing homelessness in Scotland is small.
Secondary debt and prevention strategies
11.60 There is considerable evidence in this study that many of the problems presenting through MTR reflect irresponsible secondary and consumer lending compounding financial mismanagement by some households, as well as the usual contingencies of loss of income which existing safety nets do not adequately cover. MTR is a 'last resort' mechanism but what many stakeholders wanted to see more of was better preventative measures at an earlier stage. This has broader implications for regulation of lending and national insurance/safety net schemes, as well as suggesting a need for more concerted efforts at making financial advice, lender forebearance and flexibility more generally available. The costs, risks and responsibilities of home-ownership should be emphasised in the Home Report and the RTB tenant information pack. The new section 11 notification arrangements should also provide a further entry point for advice and intervention, but could also be supported by more engagement of problem lenders, possibly through a framework agreement.
11.61 Existing private sale-and-leaseback schemes are widely promoted and being taken up quite commonly, but these attracted strong criticism for their poor value, high rents and insecurity and for being promoted to vulnerable households. While there is a case for regulating these, they do not appear to be a substitute for the government-sponsored MTR.
11.62 The Scottish Mortgage to Rent scheme is innovative, relatively unusual and of considerable topical interest as the UK and other housing markets face a turbulent time. It is best viewed as part of a package of measures to address mortgage payment and debt problems which threaten home-owners' security and thereby prevent homelessness. The scheme is designed to act as a 'last resort'. and as such fits in to a wider jigsaw of preventative and safety net measures. It fills a gap, and in the coming period the market and social pressures will increase the demands on this and related systems.
11.63 The evidence from this study clearly shows that in many respects MTR has been relatively successful. It was implemented quickly and has spent its budget without having to ration help arbitrarily, while maintaining close targeting on 'last resort' cases. Most stakeholders - lenders, advisers, social landlords - welcome the scheme and generally praise its operation. Most households going through the scheme benefit significantly and regard the outcomes for them as favourable and appropriate. The administration arrangements adopted have worked well in many respects. We estimate that MTR has prevented of the order of 8% of repossessions in Scotland over the period of its operation and that many (around half) of these cases have averted the disruption and stress of homelessness. The scheme may also have directed other households into taking and acting on financial advice which has alleviated their problems.
11.64 The evidence also shows, however, that there are a number of causes for concern. MTR only 'succeeds' in helping half of those who apply, and a significant proportion of those it is unable to help go on to have adverse outcomes. The 'Last Resort' approach conflicts to some extent with a more preventative approach, and also excludes groups who might merit support. Evidence from the scheme exposes the weaknesses and gaps in the existing general safety nets for mortgaged home owners. It has also attracted a large proportion of households who have got into complex debt problems associated with secondary secured and unsecured lending, not all of which has been incurred for housing purposes. In the process it has further exposed great variation in practice among lenders in terms of the degree of responsibility of lending and the treatment of arrears and possessions.
11.65 It is very difficult to estimate the value for money of MTR given the wider benefits of the scheme that cannot easily be given monetary value. However MTR is relatively expensive per case helped, and it is difficult to clearly justify this cost in terms of other public costs avoided from a narrow housing point of view. Viewed as a national insurance scheme for homeownership, it is cheap, but it is not preventing the bulk of repossessions and its impact on overall homelessness prevention is slight. The processing of MTR cases is characterised by many delays, with few cases achieving target times, and delays add to the debt problems facing households. A minority of households going through MTR express some regrets and/or criticisms of the additional repair costs imposed and their loss of remaining equity.
11.66 The recommendations put forward in Chapter 12 are designed to address these areas of concern. Their main themes are to somewhat widen coverage and eligibility while offering a range of levels of support and more refined targeting; to reinforce preventative measures; to reform safety nets and the regulation of secondary lending; to streamline and accelerate the process and minimise damaging delays; to reduce costs; to improve the flow of information and give participants realistic expectations; and to provide mechanisms for review and redress.