This content applies to England only.

The current climate of economic uncertainty is extremely worrying for the 68 per cent of households in England who own their home. [1]

As house prices increased over the last decade, so did the numbers of borrowers who took out risky mortgage loans that stretched them to their financial limits. At the same time, growing numbers of people found themselves priced out of buying altogether. Now that house prices are falling, and market conditions are bringing insecurity to many households, the Government's focus on increasing home ownership  is looking increasingly unrealistic and out of date.

High levels of mortgage arrears and repossessions show that even historically low interest rates and a raft of measures to support struggling homeowners are not preventing high numbers of households from losing their homes.

Better regulation of mortgage lending is desperately needed if we are to prevent this situation from happening again in the future, and the Government must remain committed to mortgage safety nets to prevent the tragedy of losing a home.

How many people really own their home?

In reality, only a minority of households can afford to buy their homes outright. By contrast, most people need to buy their home through taking out a mortgage loan secured against their property. So, although on paper over 14.6 million households in England (68 per cent of the total households) already own their home, over half of these still have an outstanding mortgage. [2] That means these homes can still be repossessed if households become unable to keep up with their mortgage repayments.

Issues with home ownership

The current affordability crisis

The most conspicuous problem with the UK property market in recent times has been spiralling house prices, which have sparked a situation where many people cannot afford to buy. Even now that prices have fallen, home ownership is still out of reach for thousands of households.

There are many reasons why house prices rose so rapidly. On the supply side, levels of house building have failed to keep pace with high levels of demand. On the demand side, smaller households, the popularity of buy-to-let as an investment, and second-home ownership all contributed to a situation where more and more people were competing to buy a relatively small number of properties. If the underlying problem of the shortage of housing is not addressed, this cycle of boom and bust is destined to repeat itself.

The risk of home repossession

Even if you can get on the ladder, you're still not guaranteed to be in a secure position. Many people were given mortgage loans many times their annual salary. This resulted in hefty repayments that stretched households to the limits of what they could afford. In these circumstances, there is a big risk of borrowers being unable to meet future repayments. This in turn raises the threat of a home being repossessed when borrowers are unable to remedy the situation, potentially leading to homelessness for that individual and all their dependants.

Following campaigns by Shelter and other organisations, the last Government introduced a range of safety nets to help struggling homeowners. These include:

• Mortgage Rescue Scheme
• Homeowners’ Mortgage Support
• improvements to Support for Mortgage Interest.

We are working closely with government, industry, and other advice agencies to make these initiatives work and we continue to monitor their effectiveness carefully. Find out more about safety nets for homeowners

Successful Shelter campaigns have also lead to the regulation of the sale and rent back market, better regulation of arrears management by the FSA, new laws to protect tenants when their lender defaults and the introduction of a pre-action protocol requiring lenders to take certain steps before starting possession action.

A huge amount has been achieved, but while historically low interest rates and better mortgage safety nets have prevented the scale of repossessions from being as severe as some predictions, the outlook remains grey with economic forecasts predicting that many more households will lose their home in 2011 in the face of rising unemployment and, potentially, rising interest rates.

Some schemes to help homeowners have already been scaled back as a result of public spending cuts, and lenders and government must continue to find ways to help struggling borrowers.

The impact of the Right to Buy scheme

In 1979, council housing tenants were granted the Right to Buy their homes. In response, more than 1.75 million council tenants bought their homes in England, [3] in many cases spurred on by private companies seeking to exploit the Right to Buy for commercial gain. This was later followed by the Right to Acquire, which granted the similar privileges to housing association tenants. Overall, this has caused a massive reduction in the size of the social housing sector in England, leading to longer waiting lists and a rising number of people living in overcrowded accommodation.

How to address these issues

Shelter believes home owners need greater protection. We are opposed to a situation in which people's homes are insecure and at risk of being lost.

We believe that if the Government wants to increase the proportion of the UK population who own their homes, then it is essential to ensure that home ownership is sustainable, that lending is affordable, and that struggling homeowners have good access to safety nets and free, impartial advice, so that people are helped to keep their homes and avoid homelessness.

Shelter believes it is not acceptable for individuals and families alone to bear the brunt of unexpected shifts in the economy or shoulder the risks inherent in an increasingly volatile housing market.

Improved mortgage advice and safety nets

Shelter believes the safety nets and advice available to home owners need to be improved so that people are helped to keep their home and avoid homelessness. We welcome the Government-backed mortgage safety nets, which we believe have played a significant role in preventing repossessions from spiralling out of control. To keep struggling homeowners from losing their home, we believe that the Government should remain committed to providing these mortgage safety nets.

The Government’s recent cuts to Support Mortgage Interest (SMI) payments have led to many struggling homeowners being left short and unable to make interest payments on their mortgage, thereby increasing the risk of individuals and families losing their home. Shelter believes that SMI should be paid at the rate of interest charged by lenders and not at the current arbitrary rate, which doesn’t account for the high interest rates that many struggling borrowers have to meet.

Pre-action protocol

The pre-action protocol sets out the steps that should be taken by lenders to ensure that repossession is only used as a last resort. It means that lenders are required to take steps to help borrowers resolve their arrears or to negotiate new mortgage agreements before possession proceedings are commenced against them.

Shelter both campaigned for and welcomes the protocol as a way of helping people to keep their homes. The drop in the number of repossession claims since the introduction of the protocol in November 2008 is a positive indication that it is having some effect. [4]

However, the  pre-action protocol lacks legal 'teeth': there are no sanctions for lenders who fail to follow this procedure.

If the courts were able to enforce the pre-action protocol, and impose penalties on those who do not follow the protocol, it would then be more effective at helping people who are in arrears to keep their homes.

Campaign demands

Shelter calls for:

• Full implementation of FSA’s mortgage regulation proposals
• Maintaining government mortgage safety nets
• Maintaining lender forbearance and emphasis that repossession should only be a last resort
  
• FSA regulation of buy-to-let mortgages and second charge lending.
  

[1] CLG, Survey of English Housing Preliminary Report: 2007/08, 2009

[2] Ibid.

[3] Social Housing Sales, Live Tables, Table 670, www.communities.gov.uk

[4] Mortgage and landlord possession statistics, Ministry of Justice 2009 www.justice.gov.uk