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Evaluation of the National Mortgage to Rent Scheme

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CHAPTER FIVE PROFILE AND EXPERIENCE OF APPLICANTS

5.1 This chapter looks at the types of households using MTR and the types of properties they are living in, drawing on the administrative database as well as household interviews and making comparisons with wider benchmarks from national surveys. It goes on to look at the financial circumstances and experiences which led to the MTR application, drawing primarily on interviews. It then considers the reasons why some cases withdrew or were ineligible (drawing mainly on the database and the case files), and also reasons why MTR applicants could not trade down. There is a further discussion of aspects of background circumstances, and on applicants' perspectives on how far MTR may have prevented homelessness.

Household Profile

5.2 We have a relatively limited range of data from the administrative databases about the household characteristics of MTR clients. We have measures of household size, age, disability and ethnicity, and likely requirement for Housing Benefit (indicative of low income). Where possible comparisons are made with wider Scottish data from SHS or SHCS. We do not have full income information, nor an easily constructed household type category. Neither do we have a classified set of reasons why households got into financial difficulty before applying to the MTR scheme.

5.3 Table 5.1 summarises the overall demographics of the MTR clientele in terms of age and household size, again breaking it down by current status. Where the proportion is relatively high for a particular status group the figure is shaded. However, the overall patterns are perhaps more interesting than the differences between the status (outcome) groups.

Age and Household Type

5.4 In particular, there is a strong concentration of MTR cases in the 'middle aged' group, with 46% aged 45-59. There are very few cases indeed aged under 25 and relatively few aged 25-34. This is somewhat surprising, as one might expect younger households in the earlier stage of their housing careers to have more problems with affordability and the unfamiliarity of managing housing costs and household budgets (generally confirmed by Table 4.9 in Chapter 4). We would not expect large numbers of post-retirement households to still have mortgages, so the fact that as many as 13% of applicants were over 60 is also, perhaps, surprising. This focus on an older age group is distinctive and not wholly expected.

5.5 The household size profile is fairly typical of owner occupation, with 23% one -person households and 24% two-person (compared with 18% and 30% respectively for mortgaged owners in Scotland - SHS 1999-2005). Nearly 30% are larger households with four or more persons, but again this is similar to all mortgaged owners (32%). Single person households are more likely to be ineligible or to withdraw. Larger households are more likely to be 'in process', possibly indicating that these cases are more complex.

5.6 Younger households are more common in Lothian, older households in the more rural areas. The age profile is getting marginally younger over time. Older households are more likely to be in detached or bungalows, with younger households more likely to be in flats.

5.7 Unsurprisingly, smaller households are more concentrated in flats. Larger households are more prevalent in terraced and semi-detached houses. There are also significantly more larger households in Highlands and Islands although not in the other rural regions.

Income

5.8 Overall, nearly half of MTR applicants (46%) are on a low income, reliant on benefits, judging from the variable 'likely to require Housing Benefit'. This would make them much more 'low income' in profile than typical mortgaged owners. This has major implications for policy options relating to 'market rents' or shared equity. However, the HB share has fallen significantly over time, from nearly 60% in 2003 to only 33% in early 2008 (43% in 2007). We can only speculate about reasons for this, but it has been a period of economic and housing market upswing. HB cases are slightly more likely to withdraw. HB cases are more common in Clydeside and Highlands and Islands, and less prevalent in Lothian and the North East.

Equalities Groups

5.9 It appears that more than a quarter of MTR clients (26%) have some form of disability or long standing illness, slightly above a comparable figure for mortgaged owners in Scotland (23%, SHCS 2002). This would be consistent with the story about older households. These cases are more frequent among those 'in process', possibly suggesting more complex cases. Ill or disabled applicants are more prevalent in detached houses/bungalows and in the Highlands and Islands.

5.10 Very few MTR clients are declared to be from BME communities, with only 0.6% Asian and 2.8% 'Other or Not Stated'. These proportions do appear to be increasing, however, and are well above the proportion of mortgaged owners from non-white ethnic groups (1.1%, SHS). This would appear to be encouraging evidence of success in promoting the scheme to minority groups but care is needed owing to generally small numbers and ambiguity about the category 'other or not stated'.

Table 5.1: Age of Oldest Household Member and Size of Household by Status (percent)

CategorySettledIneligible

Withdrawn

In ProcessTotal

Age

Under 25

0.8

0.2

0.5

0.5

25-34

9.2

9.6

16.2

13.1

10.8

35-44

30.4

30.3

29.6

28.2

29.9

45-59

45.6

48.0

40.8

46.6

45.9

60 over

14.1

11.8

13.4

11.7

12.9

100.0

100.0

100.0

100.0

100.0

Persons

1

19.1

27.9

27.0

20.1

22.9

2

26.5

21.2

24.7

25.0

24.4

3

24.3

23.6

22.5

18.6

23.1

4

18.7

16.0

15.7

23.0

18.1

5+

11.5

11.2

10.1

13.3

11.4

Total

100.0

100.0

100.0

100.0

100.0

Source: Analysis of MTR and Allocation of Cases databases

Households interviewed

5.11 Overall, 69 applicants were interviewed - 52 who had settled through Mortgage to Rent and 17 who had withdrawn or had their application declined. We spoke to more women than men, at 39 and 30 respectively. This is likely to reflect the fact that women appear more generally inclined to participate in social research. However, single parents (mainly women) are an important applicant group, making up around 15% of applicants interviewed while being just 2.4% of all owner occupiers ( SHS 2007).

5.12 As indicated in the monitoring data, MTR applicants tend to be older than might have been expected. Most applicants interviewed were in their 40s or 50s (with 24 respondents in each group) with around 20% aged over 60 years old. Just around 1 in 10 respondents were less than 30 years old. This is consistent with the picture given above from the MTR database.

5.13 This phenomenon would appear to be explained at least in part by the property price threshold which determines eligibility. Around a third of properties were bought for less than £30,000 and around a third were between £30,000 and £50,000. Many of the properties are ex- RTB properties, and almost a third of applicant interviewees had bought their property through the Right-to-Buy. Some of the remainder were also owners who had traded up from a previous RTB property to a RTB resale property.

5.14 Just under half of respondents were first-time buyers, although some of these were very long-standing owners. Less than 1 in 5 interviewees had moved into their property in the previous 5 years. Less than 2 out of 5 had lived there between 5 and 10 years and more than this had lived there for more than 10 years.

5.15 The reasons that MTR clients often get into difficulties reflect their tendency to be older. They often experience the on-set of illness or are made redundant before reaching retirement age. Younger applicants more commonly experience relationship breakdown, although some have taken on an over-ambitious mortgage from the outset. Many applicants have a very strong connection to the property and the area and MTR is a popular option because of this.

5.16 Only a handful of the applicants interviewed were no longer in the property which they had applied to MTR from. These were mainly people who had been in a previous relationship but where their previous partner now occupied the MTR property. Understanding the client body suggests short- to medium-term supply issues for MTR landlords. Landlords have acquired an asset and a social tenancy that is unlikely to turn over in the foreseeable future.

5.17 We were only able to interview one MTR applicant who was no longer in the home they applied to MTR for. This means we cannot estimate the relative roles of private renting, social renting and private Mortgage-to-rent in housing failed applicants.

Property Profile

5.18 The MTR database provides more detail about the properties which people are living in and which are potentially to be taken into the social rented sector. Table 5.2 provides a basic profile in terms of size, type and age band of properties, again broken down by current status of case.

5.19 Most properties are two (37.5%) or three (45.7%) bedroom homes. Only 11% have one bedroom (but this is more common than for all mortgaged owners, 7%) while 5.8% have four or more bedrooms (compared with 18% of all mortgaged owners - SHS 1999-2005) . The latter feature is unsurprising, as occupants of larger homes would have more opportunity of trading down and that is probably why more larger homes feature in the ineligible category. This size mix is clearly smaller than the generality of owner occupier homes in Scotland.

5.20 The type mix is also skewed towards flats and terraces, with relatively few detached homes, and again these are more likely to be ineligible. However, the flats also show a higher ineligibility share. This may be because flats are likely to raise more problems which make social landlords reluctant to offer to take them on.

Table 5.2: Size, Type and Age of Property by Status of Case (percent)

Category

Settled

Ineligible

Withdrawn

In Process

Total

Bedroom s

1

9.5

13.1

14.0

8.3

11.0

2

39.4

37.0

33.5

36.6

37.5

3

45.8

41.8

48.0

51.7

45.7

4+

5.3

8.1

4.5

3.4

5.8

100.0

100.0

100.0

100.0

100.0

Type

Flat/Mais

33.4

38.8

35.4

34.0

35.4

Terrace

43.5

31.9

38.2

39.0

38.6

Semi

20.9

22.2

22.5

23.5

21.9

Detached/Bung

1.5

6.6

2.8

3.5

3.5

100.0

100.0

100.0

100.0

100.0

Age

Pre-1919

4.1

9.8

8.6

6.1

6.7

1919-49

17.4

20.6

27.4

18.8

19.8

1950-74

55.0

45.8

45.7

57.9

51.4

1975-1997

20.7

19.3

14.9

13.2

18.5

Post-1998

2.5

4.1

3.4

3.0

3.2

100.0

100.0

100.0

100.0

100.0

Source: Analysis of MTR and Allocation of Cases databases

5.21 Is the mix of properties changing over time? There is a certain trend towards more 3-bedroom properties. However, there is no very clear trend in terms of house type or age. There are some regional variations, with the Highlands and Islands and Rural South having more larger properties and semi/detached properties, while the North East has more one-bedroom flats. The dominant early post-war stock is particularly dominant in Clydeside and Fife/central regions, while pre-1919 is more common in Highland, rural and North East areas.

5.22 The age profile of properties is strongly focussed on the early post-war period (1950-75), which accounts for 51% of applications and 55% of settled cases (compared with 35% of all mortgaged owners, but no less than 67% of RTB owners - SHCS 2002). This was the period of highest house building rates in Scotland, especially in the public sector, which again suggests that there may be quite a lot of ex- RTB properties here. This emphasis on 'middle aged' properties may be not unconnected with the emphasis on middle aged households. Very few properties (3.2%) were built in the last decade, suggesting that there is no particular emphasis on new build estates. This would also relate to the general price/value levels in such areas. Only 6.7% of properties date from the pre-1919 period (vs. 22% of all mortgaged owners, but only 3% of RTB owners). This age group is generally associated with the greatest prevalence of disrepair and poor quality features. However, there is a slightly greater prevalence of pre-1919 in the ineligible category.

Financial Circumstances of Applicants

5.23 This section draws mainly on the household interviews to describe the types of circumstances giving rise to households' financial problems and their MTR application. The main emphasis is on the limitations of other 'safety net' mechanisms and alternative options considered. However, an important point to stress, underlined by evidence from case files and stakeholders, is the prevalence of complex patterns of secondary (secured and unsecured) debt. This issue is discussed further in Chapter 7.

Experience with Safety nets

5.24 Although almost half of those interviewed had lost their job (or their spouse or partner had), only around a third of these had their mortgage covered by Mortgage Payment Protection Insurance ( MPPI) and just 1 in 6 had received Income Support for Mortgage Interest ( ISMI). It is striking that around a quarter of those who believed they were covered by MPPI had experienced difficulties claiming, because their illness was excluded or there was some other 'small print' which led to their claim being denied. MPPI tends to offer just 12 months of coverage with a delay of 3 months initially. This meant that some respondents were already in considerable arrears before receiving MPPI while others were still out of work after 12 months and so no longer eligible.

"We thought we had all that. But you have to actually read the small print. All these (existing) medical problems are not covered if you've got anything wrong with you, don't bother (getting MPPI)."

(Did MPPI help?) "No, not at all. Because it only covered one year. […] 16 And that was it finished. I don't know how building societies work, but that was it."

"I was off work with illness and it was an illness I'd had before so the insurance wouldn't pay out."

5.25 Some covered by ISMI or MPPI still needed to resort to MTR because their Trust Deed required them to liquidate all their assets. Complex debt profiles also mean that sometimes even if MPPI or ISMI is paid, it makes little difference to the household's financial difficulties.

5.26 There would appear to be some people not claiming Income Support for Mortgage Interest who may be eligible for it. However, the timescales discussed in the interviews would see some respondents in considerable arrears and already needing to access MTR before they would even be eligible for ISMI.

5.27 In the short term some applicants used savings as income to cover a short-term period of ill-health or unemployment. This was not an option for many, though, who had large and complex debts and no savings. These people (and some who had exhausted savings) were more likely to resort to overdraft facilities, credit cards and loan consolidation to cover mortgage payments or mortgage arrears in the short-term. Some people had access to ad-hoc financial support from family members, though this form of borrowing was unpopular. Others hid their situation from family and friends; so that one attraction of MTR was that 'no-one would need to know'.

5.28 The main point relevant for policy here is that MPPI and IMSI are failing to act as effective safety nets due to eligibility rules and the timing of payments, as well as the nature of debts.

Alternatives to MTR

5.29 The most common alternative to MTR, mentioned by almost half the respondents, was selling and renting from the Council or a Registered Social Landlord. This is perhaps not surprising given the high proportion of the applicants who had previously been social renters. Assuming they could get access to a tenancy (which would depend on the local pressure), this outcome would be similar to MTR itself, except the household has the disruption of moving. (Clearly, the impact on the social sector and the government costs is different).

5.30 MTR had been the preferred option for the vast majority of applicants (perhaps to be expected from this self-selected group). The main reason for this was to be able to stay in the same property and to have long-term tenure security. Respondents were concerned about the availability, quality and location of other social rented housing opportunities, and the cost and lack of tenure security of private rented accommodation. Many respondents said they felt they had no other option to MTR, because of the severity of their financial circumstances (i.e. many could not contemplate trading down within homeownership).

5.31 Around a third of those interviewed had considered selling and moving into private renting, and around a quarter had thought about re-mortgaging. Most of the latter group had been refused a re-mortgage due to their poor credit rating or affordability issues. Around 1 in 7 respondents had thought about re-scheduling their mortgage payments and a similar proportion had looked at commercial Mortgage to Rent. As discussed earlier, the option to re-schedule payments is commonly refused where arrears are already significant. Others have had payment holidays or negotiated interest-only periods but are still unable to meet their mortgage payments in the longer-term due to long-term unemployment or ill-health. The fact that applicants do not tend to consider a wider range of options might reflect the delays in seeking help or may indicate the 'promotion' of MTR by advisers.

5.32 Those who had considered private Mortgage-to-Rent had been put off this option by the relatively lower valuation paid by these schemes (typically 80%), the higher rents or tenure insecurity. The schemes offered to Commercial MTR applicants appear to have a similar status to private renters, with an initial 6-month lease followed by a rolling month-by-month lease. For applicants who had been resident in their property for many years, this was not an attractive option. The commercial schemes seem to have a target maximum tenancy period of around 3-5 years (10 years in one unusual case), to enable their investors to realise the asset.

5.33 Four respondents had actually applied for private MTR but only two had been successful and were renting from a private agency while two applicants had been unsuccessful with both MTR and commercial MTR - the first due to the lack of equity in the property and the second due to the timing of bankruptcy proceedings. Both respondents who were renting from commercial MTR agencies were uncertain about the status of the tenancy or how long they would be able to stay in the property. If the experience of our respondents is at all typical, it suggests that a significant minority of unsuccessful applicants (around 1 in 4) might apply to commercial schemes.

5.34 The options open to unsuccessful applicants mean that mortgage affordability is commonly still a problem. Over a third of unsuccessful applicants interviewed were still struggling financially. Those who have paid off arrears using loans but who have not re-mortgaged still faced the same financial burden (so arrears are re-emerging). A couple of applicants were now facing repossession or enforced sale but did not know how long it would take. One in four unsuccessful applicants had resolved their affordability problems through re-mortgaging, getting new work or working overtime. Those who have re-mortgaged with an interest-only mortgage have secure accommodation for the time being but no long-term option for paying off the capital. This means at the end of the mortgage term they will need to sell the property.

5.35 Just under a third of unsuccessful applicants (5 respondents) were 'treading water' - not paying their mortgage or having ISMI cover the mortgage interest. 4 of these 5 respondents were awaiting court action to enable their MTR application to proceed while the final applicant was in limbo - on ISMI with long-term health problems.

The Experience

5.36 Most respondents who had settled through Mortgage to Rent felt that their experience had been made easier by involvement in the scheme and almost all said they would have lost their property one way or another without the scheme.

"I would recommend the whole thing to anyone in the same situation because the whole thing was so smooth. Very well-explained. There were no horrible surprises."

"Without a doubt, once the process started it was the best thing that we'd done in the past 3-5 years."

5.37 A few people had felt that they had 'panicked' and sold through MTR at a considerable loss of equity. With 'hindsight' they had wished they had sold their property at an earlier stage and realised their assets while in greater control

"For God's sake, do not go and do Mortgage to Rent. […] It was a very slow, very costly experience. Financially, emotionally and psychological."

"If I'd known I wouldn't get any money out of the scheme, I would have sold on the open market"

5.38 However, a couple of these people with regrets had also had quite severe depression when they had become involved in MTR and would have been unlikely to be able to cope with the stress of selling. Most people who had sold through MTR admitted that it was their only realistic option at the time because of the scale of their financial difficulties and the extent to which they delayed taking action.

Ineligibility and Withdrawal

5.39 We have already reported in Chapter 4 the most basic outcomes of the scheme, in the immediate sense, when considering the basic status categories of 'settled', 'ineligible' and 'withdrawn'. In these terms, we can say that the scheme's overall 'success rate' is 49% (discounting cases still in process). An important question, then, is why so many households got as far as applying for MTR but then were found to be ineligible or withdrew.

5.40 The most useful information in the database is contained in a free text field recording the reason for withdrawal or ineligibility. The results of this have been manually coded into a dozen categories, and the results are tabulated in Table 5.3. (For the future, it would be highly desirable for the system to code these reasons against predetermined categories, to facilitate monitoring and analysis).

5.41 The reasons can be further grouped into three main groups:

  1. Probably favourable outcome: presumption that problem is resolved or resolvable or not that serious.
  2. Intermediate or uncertain outcome.
  3. Probably or potentially unfavourable outcome: MTR model cannot be made to work.

Table 5.3: Breakdown of Reasons for Ineligibility or Withdrawal

Reason for withdrawal or ineligibility

Number

Cases

percent

Group

percent

A1: No immediate threat/action

70

11.7

A2: Resolved, repaying, selling on market, remort, etc.

92

15.4

A3: Property Value too High/ can trade down

82

13.7

40.7

B1: Applic won't contribute equity

18

3.0

B2: Other, no contact, death, chgd circs,

60

10.0

B3: Moved into other accomm (inc Social Renting)

10

1.7

14.7

C1: Unable to find Landlord

116

19.4

C2: Lender (or inhibitor) not coop/not accept shortfall

80

13.4

C3: Already evicted/repossessed

35

5.8

C4: Excess repair cost funding

11

1.8

C5: Joint owner/trustee not consent

18

3.0

C6: Unsuitable accommodation

7

1.2

44.6

No Reasons/Not Applicable (Settled/In Process)

882

Total with Reasons

599

100.0

100

Total Applicants

1481

Source: Manual recoding of free text field in MTR database
Note: 'total with reasons' comprises all ineligible or withdrawn cases minus 52 cases for which reason not recorded on database, which are included in the 882.

5.42 In discussing these reasons we also draw on our examination of case files, which included a significant number of withdrawn and ineligible cases.

5.43 Overall, the favourable group (A) accounts for nearly 41% of those MTR cases which were not settled or still in process. Firstly, nearly 12% of cases turned out not to face an immediate threat of legal action for possession (A1). These households at least have a breathing space and the potential to resolve their problems, although this outcome is not certain. A further 15% have resolved the problem, for example by selling their home on the market, by re-mortgaging or renegotiating their payments, or by obtaining money from family or other sources to pay their arrears and/or reduce their debt (A2). Such cases typically count as 'withdrawn' and a number were found in the case file audit. A third sub-group are deemed to have a property value too high to qualify, implying that they ought to be able to trade down within the local area. Again, whether they can actually succeed in doing this is uncertain, but the scheme presumes that they can

5.44 Over half of those interviewed who had been unsuccessful had been ineligible for the scheme. Five respondents were ineligible because their property price exceeded the threshold for the scheme. A further three respondents had not proceeded to the court letter/impending eviction stage.

5.45 The intermediate group (B) accounts for nearly 15% of ineligible/withdrawn cases. Firstly, there are those applicants who decline to contribute the amount of equity required by the scheme to defray subsidy (B1), which happens in 3% of cases. These are by definition cases where there is significant equity. The presumption here is that these people judge that they can find another solution without going through MTR and that this solution is preferred (e.g. trading and paying off some debt). The second category (B2) comprises a mix of no contact, death, changed circumstances and 'other', and accounts for 10% of cases (also featuring in case file audit). Generally, the presumption here is that these households no longer require MTR, although this does not guarantee that they no longer have any problems. The third sub-category comprises households who have moved into other accommodation, including in some cases social renting (B3), and this accounts for 1.7% of cases.

5.46 Three of those interviewed who had not settled through MTR had decided to withdraw the application. One had received a loan from family to cover arrears, one received an offer from the lender to reduce their payments and the other sold their property and moved in with friends. Two of the people who had decided to withdraw their MTR application were considering applying again - or had actually re-applied. One had decided to take a year-long reduced payment option from their lender instead of continuing with MTR but this period was due to end and they decided to re-apply. The other, who had received a loan from family to pay off arrears, had since got into difficulties again and were considering MTR and bankruptcy.

5.47 The third group (C) comprises more problematic outcomes and accounts for 45% of ineligible/withdrawn cases. First, and most common, are cases where no willing social landlord can be found by the MTR team (C1). This accounts for a large number of cases (19%), and must be a source of concern about the operation of the scheme. It is far from being the case that the MTR can more or less guarantee finding a social landlord. The reasons for social landlords declining cases will be explored further in Chapter 8, but it appears that concerns about the location, type and condition of the property play a considerable role. However, in quite a number of instances this appears (from the case files) to be due to non-contact at the survey stage, making this more like category B.2 above (see Chapter 8, para 8.5). Second most common are cases where the lender (or sometimes an inhibitor) is unwilling to cooperate or accept a shortfall between the debt outstanding and the money available (C2). This accounts for 13.4% of cases, and a number of instances were found in the case file audit. The shortfall may arise for various reasons, including a high loan to value ratio, an excess of secondary loans, or excessive repair costs. Lack of lender agreement may arise at the stage of revised redemption figures becoming available (case file audit). In addition, lenders may take their own view about the prospects of the household making required payments on uncleared debt, based on past experience (examples found in case file audit).

5.48 Nearly 6% of cases have already been evicted/repossessed (C3). Here the timing of the MTR application and process may be an issue. The impact of excess repair costs and uncertainty of how these might be funded is cited in 1.8% of cases (C4). The cap of £6000 on subsidisable repair costs has a bearing on these cases. In 3% of cases, another party with an interest in the property, such as a partner or a trustee, is unwilling to agree to the sale (C5). This includes complex cases with an estranged partner or in a state of bankruptcy/sequestration. Finally, in 1.2% of cases the existing accommodation is deemed unsuitable for the household occupying it, for example because it is too small (C6).

5.49 This analysis is interesting and informative. Unfortunately, because these data have been manually coded in a separate spreadsheet, it is not possible to cross-analyse them by any other attributes in the database.

5.50 Three of the household interview respondents had initially been eligible for the scheme but then had been refused because of the level of repairs and equity or because no landlord would accept the property. The final ineligible respondent said they believed the application was declined because they had two mortgages 17.

5.51 Most of those interviewed whose application had been declined, or for whom a suitable landlord could not be found, were not considering re-applying to MTR. The most common alternatives chosen by the unsuccessful applicants interviewed were re-mortgaging to an interest-only mortgage, getting a loan from family or friends to cover arrears, or just struggling to pay (while effectively waiting for repossession in a couple of cases). A couple of applicants had not had any developments in their case because they had not had court proceedings but had their mortgage interest paid by ISMI - one was unable to work due to long-term illness but could afford to pay the capital element of the mortgage while another was waiting for court proceedings to be able to re-apply for MTR.

5.52 It is, of course, important to point out that we were unable to interview any of the applicants from category C3 who have already been evicted or had their property repossessed, or indeed, those from other groups who have not.

Reasons for not trading down

5.53 As noted earlier, we do not have data from the administrative system on the reasons why households got into financial difficulty to start with. But we do have data recorded on why two of the natural solutions were not available. Firstly, in Table 5.4 we show the breakdown of reasons given for why the household could not trade down.

5.54 The most important reasons given were the extent of financial difficulties and arrears (27%) and the apparent lack of cheaper housing to buy (24%). In the former case this might reflect the extent and complexity of secondary debts, the extent of arrears, or uncertainty or lack of confidence by the household in their ability to manage payments post any move. The latter case reflects the situation of a generally inflated housing market where affordability is a widespread problem, as well as the deliberate targeting of the scheme on owners in lower value properties. This evidence tends to confirm that the scheme is being targeted as intended, and also underlines the potential limitations of alternative models involving for example higher rents or shared equity (see Chapter 10).

Table 5.4: Reasons unable to trade down and therefore need MTR
(number and percent of all cases)

Reasons unable to Trade Down

Frequency

Percent

No Reason recorded

78

5.3

Financial Diffic /Arrears

402

27.1

Low Income/ Unemp/ Pension

176

11.9

Sequestration

88

5.9

No /insuff Equity

106

7.2

No Mortgage Lender

34

2.3

No Capital

87

5.9

No Interest to Buy

12

0.8

No Cheaper Housing

359

24.2

No Suitable Housing

71

4.8

No Time to Sell

43

2.9

Other

25

1.7

Total

1481

100.0

Source: Analysis of MTR and Allocation of Cases databases

5.55 Next in importance comes low income (12%), implying that households would not expect to be able to maintain any mortgage in the immediate future. We have already seen that nearly half of cases expect to require Housing Benefit. Another 7% of cases cite lack of or insufficient equity, which would be required to cushion the transaction costs of a move and the payment off of arrears. Sequestration is cited by 6% of cases; here the household's freedom of action is severely limited. The same proportion cite a lack of capital, which might also be required to cushion transaction costs and payment of arrears. A lack of suitable housing to buy, implying issues about housing type, location or size, was cited by 5% of cases. A lack of time to sell, implying an urgent need to avert repossession, was cited by 2.9% of cases. Lack of a willing mortgage lender was cited by 2.3%; presumably these people had already explored this possibility. Only 0.8% mention lack of interested buyers, implying that they had tried to sell already. The low prevalence of this reason also probably reflects the high level of market demand generally - if we move into a market recession this might become more common.

5.56 Over time, there have been some significant changes in the balance of reasons given for inability to trade down. There has been a striking increase in the proportion citing financial difficulties and arrears, rising to 47.5% in 2008 (from 18-20% in 2004-05). The proportion citing 'no capital' has fallen to a low level recently, and there has also been a recent fall in the percentage citing lack of cheaper housing.

5.57 Low income and lack of cheaper housing are more common among settled cases. No capital or insufficient equity are more common among the ineligible group. There are also regional differences in the pattern of reasons. In Clydeside, low income and no mortgage lender are more common. In Lothian, lack of cheaper or suitable housing is more common. Sequestration is more common in Fife/Central and North East. In Rural South it is low income and lack of capital which are more common. In Highlands and Islands, financial difficulties and lack of suitable housing are particularly prevalent.

5.58 Stakeholder experience gives some feel for the way in which this demand is expressed locally. Some advisers saw people who could be candidates for the MTR scheme but owned property over the property value limits and there were concerns about the ability of some owners in marginally greater value properties to trade down. If a household wishes to trade down to reduce their outgoings, they are likely to still require mortgage finance as few households have sufficient equity to buy a lower price home outright. A lender may agree to the current mortgage to be 'passported' to a new property subject to conditions about loan to value ratios and ability to pay revised repayments; but in a more cautious lending environment, households with a poor payment record are still likely to be considered a poor risk. Repaying the original mortgage and making fresh applications for a mortgage on the lower value property is unlikely to be approved due to credit checking where arrears difficulties would be identified.

" We've found an increase in MTR applications but a lot of people aren't eligible for MTR because of the value of their house. There's no doubt that if it's an ex- local authority house then it's more likely to be accepted for the MTR scheme, than someone for instance buying a Barratt or Wimpey house. They'd be expected to trade down but its not an option…the problem is if they've got to that stage it'd show on their credit file that they're in arrears. I think it needs addressed, people in high value houses are disadvantaged, something can change quickly and they can find themselves in mortgage arrears" Adviser.

5.59 However, including higher price properties on to the MTR scheme could mean that the properties are less attractive to housing associations. While the subsidy could cover the extra cost, this would stretch the overall budget which might mean less cases could be helped. In addition, these properties would be less like typical social rented stock and as older properties could be expected to have higher future maintenance costs.

Local connection

5.60 Table 5.5 identifies the reasons given for why the household needs to stay in the local area. The most common reasons given are family connections (32%) and children's' schools (31%), followed by location of workplace or college (18%). Health/disability reasons are cited by 10% and caring for an elderly relative by 3%. Simply being a long term resident of the area was cited by 6%. There are only small differences between the outcome status groups in this respect - family reasons were more important for withdrawn cases, children's' schooling being more important for settled cases.

Table 5.5: Reasons why household needs to stay in local area
(Number and percent of all cases)

Reason To Stay in Local Area

Frequency

Percent

No Reason recorded

30

2.0

Family Connections

466

31.5

Children's School

452

30.5

Work /College

264

17.8

Health /Disability

140

9.5

Care for Elderly Rel

43

2.9

Long term residence

86

5.8

Total

1481

100.0

Source: Analysis of MTR and Allocation of Cases databases

Preventing homelessness

5.61 Typical descriptions of the scheme by applicants are as a 'lifeline' and 'a weight lifted' for people who have settled. For many, MTR was the only option being considered - mainly due to the strength of local connections, the desire to be near family and friends, schools and healthcare services. MTR has offered stability and continuity for many often very vulnerable people.

5.62 Most saw a negative outcome as having been inevitable without MTR - almost half said they would be homeless or repossessed, while around a third would have needed to have sold the property (and presumably faced housing difficulties).

5.63 In the absence of MTR, some applicants do find alternatives which prevent homelessness. Re-mortgaging to less expensive, interest-only products can be difficult but where possible can offer medium-term security. Loans from family and friends and ISMI offer some safety net provision and commercial MTR is another option albeit with only short-term security.

5.64 What is the likely impact on levels of homelessness prevented? Based on our unsuccessful applicants, one or two look very vulnerable to impending homelessness (that is 1 in 8 unsuccessful applicants). This may underestimate the true figures as we lose those who are evicted during the application process or just after.

5.65 Most mortgage lenders appear to be offering preventative solutions where borrowers contact them early enough in the process. However, debt profiles are often complex and secondary lenders do not appear to readily adopt positions designed to prevent repossession.

5.66 In terms of homelessness prevention, the applicant group tends to be people who would not be expected to have priority in terms of homeless provision. Less than a third of applicants interviewed had children living with them. However, due to the age of applicants, health issues and disabilities are common.

Conclusions

5.67 There are some limitations in the evidence base from the MTR administration system due to 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.

5.68 Half of MTR applicants are middle-aged (45-59) or older and relatively few are younger (under 35). 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. The proportion of BME households also appears higher than expected.

5.69 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.

5.70 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.

5.71 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.

5.72 There is some suggestion from the household interviews that the range of options presented to address their mortgage arrears 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, often where applicants excessively delay seeking debt advice.

5.73 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.

5.74 Since MTR only 'succeeds' in half of cases, 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, 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.

5.75 Case files as well as advisers and lenders 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.

5.76 Unsuccessful applicants continue to experience affordability problems in a third of cases, while others are 'treading water' but may not be in a position to fully pay off their mortgages.

5.77 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. But many applicants would not have priority need as they have no children.