Mortgage debts cast long shadows

You'd think the years of recession and falling house prices were a long way off. But thousands of people are still paying the price.

Mortgage facts (1999)

Number of mortgages: 10.9m

Reposessions: 30,030

Percentage of all loans: 0.27%

Mortgages 3-6 months in arrear: 96,680

Mortgages 6-12 months in arrear: 57,110

Mortgages more than 12 months in arrear: 29,520

Source: Council of Mortgage Lenders

Mortgage debts from the early 1990s are still coming back to haunt them, in some cases almost 10 years after their homes were repossessed.

In some cases, properties have been sold for considerably less than the price originally paid.

Former borrowers are finding themselves pursued out-of-the-blue for the mortgage debt shortfall.

Lender's 'best practice'

Mortgage lenders believe they are acting in the best way they can and say they are addressing the issue.

On 1 July, the Council of Mortgage Lenders and the Association of British Insurers launched a joint initiative, with a statement of practice on the selling of Mortgage Payment Protection Insurance (MPPI).

Lenders and insurers want to give home buyers a clearer picture of what resources are available if they find themselves in debt.

Lenders sell properties to pay off mortgage debt shortfalls

Even though mortgage indemnity guarantees (MIGs) cover any debt shortfall, it is only the lender that is covered, leaving the insurer free to recover payment from the borrower.

Critics say lenders could do more.

Need for reform

A recent report from the National Association of Citizens Advice Bureaux (CAB) suggests that there is an urgent case for reform.

The cut-off point for lenders to recover their money is six years in many cases, but if they insist they can pursue borrowers for up to 12 years.

The report suggests that lenders are waiting too long to contact former borrowers, compounding the problems of debt.

The CAB has issued a list of recommendations:

• Give borrowers in negative equity and facing action the right to sell the property themselves.
• Give borrowers full and accurate information on their continuing responsibilities following repossession.
• Explore with the insurance industry the possibility of borrowers being able to insure themselves against the risk of mortgage shortfall debt.

But all this are just recommendations, not rules.

Borrowers who fail to keep up with their mortgage payments will continue to live in fear of repossession.