Government must help thousands on verge of repossession - Cable

The Liberal Democrats today set out proposals to help families who are unable to pay their mortgages and are facing the threat of homelessness due to the downturn in the housing market.

The plans, which aim to reduce repossessions and increase the stock of social housing, include:

• Introducing regulated Mortgage Rescue Schemes to allow families struggling with repayments to sell all or part of the equity in their house and rent it back from a housing association or private firm to help keep them in their home
• Allowing councils and housing associations to borrow money to buy up land and empty new homes for use as social housing
• Courts to be given guidelines to only allow homes to be repossessed in extreme circumstances, making the mortgage lenders' voluntary code binding on all lenders

Commenting, Liberal Democrat Shadow Chancellor, Vince Cable said:

"The Government seems obsessed with fighting a losing battle to artificially prop up the housing market, rather than finding ways to deal with its worst effects.

"Ministers must act to help the thousands of families struggling to keep a roof over their heads.

"The Government should allow councils and housing associations to buy up land as well as empty homes to help replenish Britain's much depleted stock of social housing.

"Ministers must also tighten up repossession rules, to ensure that people's homes are only ever repossessed as a last resort.

"The Government should introduce regulated Mortgage Rescue Schemes. Under this arrangement, families struggling to pay their mortgage could sell part of the equity in their home and rent it back from a housing association or private firm.

"These plans could be funded using money already committed to social housing but currently unspent because of the collapse of new building. They would also save taxpayers the cost of re-housing the homeless without going down the disastrous route of giving open-ended guarantees for new mortgage lending."

The Liberal Democrats are due to debate these proposals at their forthcoming autumn conference. The full text of the conference motion is copied below:

Conference notes that:

i) House prices have continually fallen since last autumn, with further falls predicted, putting millions of people into negative equity.

ii) 1 million households spend more than two-thirds of their income on housing according to a recent survey by Shelter.

iii) The number of repossessions and repossession claims have more than doubled in the last five years, reaching a 15-year high in 2007.

iv) Under this Government the social housing safety net has dwindled from 4.386 million social homes to rent in England in 1997 to just 3.936 million social homes in 2006 while the number of households on social housing waiting lists has risen almost 70% to 1.67 million and notes that the Local Government Association predicts that this could rise to 2 million households by 2010.

Conference supports the policies passed in conference motion Homes for All in spring 2008 to increase the supply of sustainable social and affordable housing.

Conference acknowledges:

a) The current dramatic falls in house prices are the result of an unsustainable bubble that formed in the housing market fuelled by irresponsible lending.

b) Throughout the period of unsustainable growth in the housing market the Government made no attempt to deal with the housing bubble, or to crack down on irresponsible levels of lending.

c) That while it is not the job of government to prevent house prices falling to a more affordable level, it is not in the interest of the economy as a whole if negative equity and repossession leads to large numbers of people becoming homeless and over-indebted.

Conference therefore calls on the Government to:

1. Allow councils and Registered Social Landlords to borrow against their assets to buy up unsold properties and sites from building companies in order to replenish the social housing stock, to deal with the current 1.67 million households on social housing waiting lists.

2. Introduce a statutory Code of Practice for mortgage lenders to ensure that repossession is the only ever the last resort - all borrowers in arrears should be offered:

a) Free independent financial advice.

b) A chance to renegotiate the terms of their mortgage.

c) An opportunity to sell equity in their home to a Registered Social Landlord (RSL) and become part-tenants of that landlord, dependent on meeting the requirements of the RSL.

3. Protect vulnerable homeowners against rogue doorstep companies by regulating the private 'sale and leaseback' market as a financial service through the Financial Services Agency.