Scotland has a problem, following the imposition of Tory policies in the later part of the 1970’s through the 1990’s, many council houses were “sold off”. As a nation we are discovering we can no longer home our own people in emergency situations.
One of the saddest facts is that decades of neglect in this area can’t be fixed next week, and even long term fixes aren’t always possible in these times of Westminster imposed austerity cuts. We Scots must then arrive at our own solutions through our creative abilities and resourceful application of political policies.
We do have the potential to legislate at least one policy, an almost no cost, voluntary, short term fix and use the proceeds for new social housing, it just requires a little bit of forward thinking so don’t expect all political parties to adopt it.
Before I get deeper into the solution, it’s worth taking a good look at the problem. Typically in private housing an eviction takes place when mortgages go unpaid. Mortgages go unpaid for a great many reasons, foremost among them being involuntary unemployment and long term disability.
With eviction come a string of social issues, finding alternative accommodation (often at public expense), relocation and re-housing of children, disturbance, stress and breakdown of family units, and delays in the current council housing lists. All of these have both hidden and direct costs to society as a whole. In the case of the children the damage can sometimes last for decades, if not a lifetime.
The solution could be as simple as a small piece of legislation, likely to be violently opposed by the banking lobby, which would go a distance in solving these issues.
When a mortgage is in default, the Scottish Government can legislate itself the option to purchase and clear the loan from the mortgage holder at face outstanding value. All the current homeowner has to do is to fill out a simple form to ask for this to be done stating the circumstances. The wheels are then set in motion for some very simple tests. If the property meets the tests the home is bought by the government (us) and the running of the home is handed over to the local council.
These tests could be required to be performed within 30 days, at the end of it the mortgagor gets a cheque, or the homeowner is told they don’t qualify. In the interim the entire repossession process stops. At a minimum this buys the family time, and in these cases time is often precious.
The tests are simple – does the property have at least 25% equity, if not will the mortgage holder accept 75% of value in cash. Can the “homeowner” pay the flat council rent for the area from any combination of income(s). That’s it. In the first case it’s a flat pay of the mortgage by the state (us), and in the second a negotiated settlement with the mortgage holder by the state (us).
Why would the lender accept less than they are owed? If they had a £100,000 house on the books, but knew they couldn’t sell it quickly for that, but perhaps only get £90,000 at auction, and are owed £80,000 then they stand to make £10,000. Why give that away. That £10,000 goes very quickly in unpaid council tax, legal fees, repossession costs and any required minor repairs. Take off agents’ fees and now the bank gets less than the 75% it would get from the government. In these cases the lender has the choice, and the homeowner is always encouraged to get to and maintain that 25% equity thereby removing this option from the lender. Fiscal and social responsibilities are encouraged.
If the property meets these criteria, or is negotiated, the ownership transfers to the government and becomes part of the social housing bank, except the original homeowners now become “council tenants” at the same address. They pay the same rent to the local council as is prevalent in the area from the same income, subsidies or benefits; they just don’t have to move. No social upheaval, no emergency housing, no additional extended waiting lists, no impact to the children.
Who loses? The banks do, they no longer get to call in a loan with massive equity and profit immensely through subsequent retail selling in cases where this is enacted. The homeowner does, their equity is effectively gone, they’ve traded it for security for their family and keeping the same roof over their heads, it would be lost either way.
Who wins? The homeowner, they’ve gone from losing their home and being homeless, with possible bank and repossession costs figured in, destruction of credit, the costs of moving and stress on top, to simply no longer paying a mortgage and knowing, for most, rent is not an issue. The local council who get the rental income without having to build or buy the house. The government (us), but that’s delayed, and society on both the long and short terms. The banks do as they make from interest payments and in many cases do not have the grief of extended eviction processes.
What happens when the family no longer requires the home, how can this be a no cost solution?
When the family or individual move the home is sold. Period. The home is sold at market rates (remember that 25% minimum equity?) and the profit is returned to the central government to be placed in a fund from which future government social housing programs can be built.
In these harsh economic circumstances it’s really rather a simple and elegant solution, of course the banks and certain of our political parties may not think so, after all this voluntary program would be good for the people.