Dr Saidunnabi Piyal

Saidunnabi Piyal received LLB(Honours) and LLM from the University of Dhaka, Bangladesh and PhD in Law from the University of Aberdeen, UK. He also received PG Cert in Higher Education from the University of Wolverhampton, UK.

Before coming to the University of Wolverhampton, he taught Law in the University of Aberdeen, UK. He is currently teaching Land Law, Equity & Trust, Commercial Law, Intellectual Property Law and International Trade & Finance. He was an External Panel Member of the University of Derby. He is also a member of Society of Legal Scholars and Global Alliance for Justice Education.

Saidunnabi Piyal’s research interests lie mainly in the areas of Property Law, Comparative Private Law (especially property in mixed legal systems), Commercial Law and Intellectual Property Law.

Mortgage Rescue Scheme in England - How secure are you?

Introduction

The mortgage rescue scheme aims to help vulnerable homeowners to stay in their home. The scheme has two separate parts - a Shared Equity scheme and a Mortgage to Rent scheme. Under the Shared Equity scheme, a housing association will give a loan which will be used to lower monthly mortgage repayments. Under the Mortgage to Rent scheme, a housing association buys the home and allows to carry on living there as a tenant. National Audit Office has suggested that the Department for Communities and Local Government launched the two-year Scheme in January 2009 with a budget of £205 million from the National Affordable Homes Programme, administered by the Homes and Communities Agency (the Agency). In April 2009 it added a further £80 million. In October 2010 the Department was allocated a further £221 million to continue the Scheme until spring 2013 (Executive Summary, 2011: 4).

The housing minister, Margaret Beckett, said in the Guardian, "We know that some families are worried about their mortgage payments right now, and we are determined to do everything possible to ensure repossession is always a last resort” (Government rolls out mortgage rescue scheme, 2009: 16 Jan). National Housing Federation, chief executive, David Orr, said in the Guardian, "The mortgage rescue scheme will save thousands of vulnerable families from the nightmare of having their homes repossessed and give them the long-term stability they need. It will also serve to undermine those shadowy companies currently making money out of people's misfortune by buying their properties at substantially less than the going rate - and then only letting them stay on a short-term tenancy basis." (Government rolls out mortgage rescue scheme, 2009: 16 Jan)

The scheme is open to households containing at least one person with “priority needs” as defined in the Housing Act 1996 and Priority Needs Order 2001. Such people include a pregnant woman, a person with whom dependent children reside and a person who is vulnerable as a result of mental illness, physical disability or some other special reason. As well as falling into one of the above categories, the applicant must be at risk of repossession (for example the lender is actively taking proceedings for possession). If there is more than one owner, all owners must be in agreement. The applicant must have sought debt counselling and advice from an approved advisor and must have agreed to debt rescheduling and discussed alternative options with his lender before being eligible for the scheme. The applicant must not own a second home, either in the UK or abroad. The gross annual income of the household must be less than £60,000 per annum. For mortgage to rent, the applicant’s outstanding mortgage debt must be between 75% – 120% of the value of the property.

Citizen Advice Bureau (Mortgage rescue schemes, 2013) has advised if someone is considered suitable for the mortgage to scheme, he/ she will no longer own his/ her home. Instead, a social housing landlord buys the property and rents it back to him/ her. Following this process he/ she will be given an assured short-hold tenancy. The tenancy will allow him/ her to stay in his/ her home for at least three years. At the end of this time, he/ she should be given a new tenancy, as long as he/ she has kept to the conditions of his/ her tenancy agreement.

Citizen Advice Bureau (Mortgage rescue schemes, 2013) has also advised that someone should also bear in mind that if he/ she sells his/ her home but continue to live there and pay rent, he/ she may not be entitled to Housing Benefit and he/ she will not have an automatic right to buy the property back again, although this may be possible in some circumstances.

Aim and objectives

This study is an attempt to form the basis of an evaluation as to the effectiveness of the Scheme in order to propose ways to improve. The findings from this study have implications for authorities concerned with the Scheme.  It is intended that recommendations from this study will inform changes and legislative amendments to overcome the present difficulties so as to increase security and benefits to tenants.Bottom of Form

Methods

This study has been conducted by Black letter /doctrinal approach. It analyses the existing state of the law concerning the mortgage rescue scheme and then goes on to analyse the path the law may take.

This study has also been conducted by policy research. It assists in explaining why the mortgage rescue scheme was introduced.

Research design

This study has been undertaken in conjunction with the Local Council and Citizens’ Advice Bureau. The approach of this study is qualitative. Reports and statutes are obtained in hard format and the internet is accessed as well. Secondary sources in the form of articles and commentaries in journals are also considered to analyse the existing position.  Qualitative data are collected from the publications of the Department of Communities and Local Governments, Social Policy Section of House of Commons, National Audit Office and Citizen Advice Bureau.

Findings

The scheme has been introduced as part of the Government’s response to the deepening economic recession and housing market downturn, with the intention to prevent repossessions and the adverse consequences for individual borrowers and to enhance market confidence. The main motivation of the scheme is to prevent household becoming homeless, avoiding subsequent uncertainty regarding alternative accommodation with regard to location, property, timescales and security and to provide relief from the uncertainty and stress of debts. It allows household to remain in their home, in their community with continuity of schools, neighbourhood and family support.

It is mentioned above that under the Mortgage Rescue Scheme the Government can arrange for a local authority or a social landlord such as a housing association to buy the home of an vulnerable homeowner and for an vulnerable homeowner to continue to live there as a tenant. It provides a trusted landlord & three-year tenancy agreement at a reasonable below market value rent. This three-year tenancy is assured shorthold tenancy and it allows the tenant to stay in home for at least three years. At the end of this time, tenant should be given a new tenancy, as long as he/ she maintains the conditions of the tenancy agreement.

This assured shorthold tenancy was introduced in Housing Act of 1980 and expanded in Housing Act of 1988 and following Housing Act of 1996, it is now the standard form of Assured Tenancy for both Housing Associations and private landlords. The drawback of the assured tenancy is that it provides an easy mechanism for the landlord to gain possession after a fixed period of time without proving any statutory ground where to gain possession of a secure tenancy the landlord must prove one or more of the statutory grounds prescribed by the Schedule 2 of the Housing Act of 1985. Moreover, the local authority or the housing associations have always had an ambiguous tenure status which has altered depending upon which Government was in power at the time. It is mentioned earlier that under this scheme if a vulnerable homeowner sells his/ her home but continues to live there and pay rent, he/ she may not be entitled to Housing Benefit and so by the virtue of this scheme a vulnerable homeowner can avoid the risk of repossession but the risk of eviction still persists if he/ she fails to pay the rent. Therefore, this Scheme is likely to increase insecurity for tenants in the future, particularly for those on low incomes.

Additionally, this Scheme significantly influences some statutory rights.  Wilson has suggested (2009: 2) that council tenants are generally secure tenants, the vast majority of whom have the Right to Buy the home in which they live at a discount. This statutory right was introduced by the 1980 Housing Act and was subsequently consolidated into the 1985 Housing Act. Housing association tenants who entered into their tenancy agreements prior to 15 January 1989 (the date on which Part 1 of the 1988 Housing Act came into force) are also secure tenants. These tenants enjoy the same Right to Buy their homes as council tenants under the 1985 Act. However, this right does not extend to tenants of charitable housing associations.

The issue is that this Right to Buy allows most council tenants to buy their council home at a discount. Someone can apply to buy the council home if it is his/ her only or main home, if it’s self-contained, if he/ she is a secure tenant and if he/ she has had a public sector landlord (e.g., a council, housing association or NHS trust) for 5 years and it doesn’t have to be 5 years in a row. (GOV.UK, 2013: 8 Nov)

Although the above Right to Buy gives eligible people who live in council properties in England the right to buy their home at a discount and this is open to people who are secure tenants of a local council and who have spent at least 5 years as a public sector tenant, a tenant under this mortgage rescue scheme may not have an automatic right to buy the property back again and thus the statutory Right to Buy is interrupted by a non-statutory scheme. Moreover, introducing this scheme does not satisfy the psychological need of the population for home-ownership. Bottom of Form