Struggling homeowners set to avoid repossession by loophole closure

Plans to be announced tomorrow mean that mortgage lenders will be barred from seizing a borrower’s property without first seeking a court order.

The proposals come after a campaign by charities which started following a judge ruling last year in favour of lender GMAC-RFC in a repossession case.

After missing two mortgage repayments, the loophole left the involved homeowners vulnerable to immediate repossession.

It is thought that the Ministry of Justice will recommend that lenders will only be able to take a property if they have a court order or if the owner voluntarily hands over the keys.

The government said that the move is aimed at stopping “rogue lenders” using the loophole to their advantage.

As part of an eight-week consultation, the decision comes after months of objections from debt advice charities to a law dating back to 1925, which enables banks and building societies to repossess without going through the courts.

Bridget Prentice, Justice Minister, said: “Under the existing law, lenders have the right to repossess and sell a property without seeking either the agreement of the owner, or of the courts. While there is no evidence that owner-occupiers are being treated in this way, the government proposals published today would close this loophole and prevent any future instances of ‘rogue lenders’ behaving this way.”

According to the Council of Mortgage Lenders (CML), around 48,000 properties were repossessed in the last 12 months, much less than the 75,000 that were predicted for the year at the beginning of 2009.

Many of those who have had their properties repossessed are thought to have borrowed sub-prime mortgages from non-mainstream lenders. Earlier this year, the Financial Services Authority (FSA) fined GMAC a record £10.5 million for failing to treat its customers in arrears fairly.

Ivan Cooper, Chairman at debt advice specialists Chiltern, said: “Lenders need to ensure that they explore every action first to avoid repossessing people’s homes, as many debt problems can be solved with a little help from a professional.

“Impartial debt help from a reputable organisation, could mean that these situations are avoided and that debt management issues are resolved – without the need for repossession.”