May the (task) Force be with you...
NI Negative Equity is back in the headlines today. The fact remains that the region has been much worse affected than the rest of the UK after the property bubble popped when prices rose and fell at their sharpest. Unfortunately, there can be no recovery here until we deal with this legacy debt.
The Stormont backed Housing Repossession Taskforce issued its final report today post their examination of the high levels of Negative Equity in NI. In short, it suggests banks could do more to help mortgage customers who are in negative equity or facing repossession.
In part I agree with this statement, but in the banks' defence, when a proposal is brought before them by a borrower, in my experience they always give consideration to same. Accordingly, there is a part to be played by the borrower to educate themselves on the options available, put a plan in place and move forward by implementing this plan.
This starts with the borrower getting the best advice from a team of professional advisors who have the experience and know what they are doing. Most importantly, they should be putting the borrower interests first, based on their circumstances, and not dealing with them in a way that fits their own business model. We have been told about the horror stories of prior bad experiences, so unfortunately, not all advisors who operate in this industry are what they seem, or professional. Be sure to ask them plenty of questions: are they regulated and what deals they have delivered in the past?
That said, the Housing Repossession Taskforce has also warned that the number of people falling behind on their mortgage payments could increase when interest rates eventually begin to rise. It assesses that the number of very high risk borrowers could more than double from 15,000 in 2014 to 32,000 in 2018. Interest rate rises are on the horizon, so now is the time to start thinking ahead.
It was also interesting to note that its main recommendation was greater use of the Assisted Voluntary Sales (AVS) process rather than banks proceed with repossession proceedings. This has been the GDP message since 2011 and I am now glad to see the government has finally caught up... only 4 years later.
Through a Consensual Sale process, which many of our clients were unaware of but have now been through, you sell the property for its true market value and remit the funds to the bank to help mitigate the foreseeable debt shortfall. This avoids the anxiety, cost and stress associated with court action through repossession proceedings.
The fact remains that the court system in NI has a Pre-Action Protocol outlining the steps both a bank and borrower must explore before a matter should be brought before the court. It is imperative that a borrower holds a bank to account who does not adhere to same.
The Housing Repossession Taskforce estimates that repossessed properties sold between 2008 and 2013 only achieved 42% of the "true market value". The report accordingly raises concerns about banks selling repossessed houses at auctions as prices achieved at auctions are generally lower than a private sale.
When this happens, this leaves the borrower with a bigger debt shortfall, so it is in the best interest of both parties to work together by coming to an amicable agreement and agree a mediated settlement. Debt, at the end of the day, is an affordability issue, so whether the debt shortfall is £50k, £100k, £150k+, the borrower will only have a finite debt affordability, so it is always best to try and reduce the amount that will be owed.